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ITUAL  BANKING 


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THE  RADICAL  DEFICIENCY 
OF  THE  PRESENT  CIRCULATING 
MEDIUM  AND  THE  ADVANTAGES 
-  =OF  = 

A  FREE  CURRENCY 


BY 

WILLIAM  B.  GREENE 


PUBLISHED  BY 

THE  REFORM  LEAGUE  OF  DENVER,  COLO. 
1919 

Price,  25  Cents 


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MUTUAL  BANKING 

SHOWING  — 

THE  RADICAL  DEFICIENCY 
OF  THE  PRESENT  CIRCULATING 
MEDIUM  AND  THE  ADVANTAGES 

A  FREE  CURRENCY 


BY 

WILLIAM  B.  GREENE 


PUBLISHED  BY 

THE  REFORM  LEAGUE  OF  DENVER,  COLO. 
19  19 


EDITOR'S  PREFACE. 


THE  payment  of  interest  has  been  opposed  by  great  thinkers  in  all 
ages.  Philosophers  have  demonstrated  that  it  has  no  reason  for  being. 
Ethical  writers  have  shown  that  justice  does  not  countenance  it.  Econ- 
omists have  proved  it  an  unnecessary  evil.  Among  its  greatest  oppo- 
nents we  find  Aristotle,  Berkeley  and  Proudbon.  These  three  mighty 
thinkers,  though  living  at  different  times  and  in  different  countries, 
neither  using  the  same  methods  of  research,  or  making  deductions  from 
the  same  data,  yet,  from  their  various  standpoints,  reached  the  conclu- 
sion that  interest  is  neither  wise,  just  or  necessary.  Not  all  the  argu- 
ments which  any  one  of  these  writers  employs  are  used,  or  would  be  ac- 
cepted by  either  of  the  others,  but  to  a  considerable  extent  the  three 
reason  identically,  so  that  we  find  Berkeley,  the  Christian,  agreeing 
with  the  Pagan,  Aristotle,  and  confirmed  by  Proudhon,  the  Rationalist. 
Of  this  trio,  however,  Proudhon  alone  pointed  out  that  interest  could  be 
made  to  disappear,  not  by  curtailing  individual  liberty,  but  only  by  ex- 
tending it. 

In  the  main  the  author  of  this  work  follows  in  Proudhon's  path,  de- 
parting from  it  in  some  important  particulars,  but  in  general  only  so 
modifying  his  master's  work  in  finance,  both  critical  and  constructive, 
as  to  make  it  applicable  to  the  monetary  system  and  economic  methods 
prevailing  in  the  United  States.  His  assault  is  upon  the  system  of  state 
banks  that  was  in  existence  when  he  wrote  (nearly  half  a  century  ago), 
and  the  system  of  mutual  banks  by  which  he  proposed  to  replace  it  is 
an  adjustment  to  American  routine  of  the  essential  principles  embodied 
in  Proudhon's  "Bank  of  the  People."  The  reader  will  have  little  diffi- 
culty in  readjusting  the  arguments  to  the  new  conditions  resulting  from 
the  displacement  of  the  state  banks  by  the  national  banks. 

Analytical  examination  of  Greene's  work  will  show  that  it  is  written 
In  elucidation  and  illumination  of  the  discovery  that,  considered  as  a 
whole,  interest  payment,  as  it  exists  in  modern  times,  is  not  what  it  is 
professed  to  be,  the  price  paid  for  the  use  of  borrowed  capital,  but  the 
premium  paid  for  the  insurance  of  credit.  Paying  interest  is  generally 
accepted  as  equitable  because  it  is  looked  upon  as  a  reimbursement  of 
the  holder  of  capital  for  foregoing  the  advantage  of  using  his  capital 
himself.  Though  the  so-called  borrower  really  needs  capital,  and  ulti- 
mately gets  it  as  a  result  of  the  transaction  between  himself  and  the 
so-called  lender,  this  transaction  is  really  not  one  of  borrowing  and 
lending,  but  simply  a  temporary  exchange  of  well-known  credit  for 
credit  less  well  known,  but  equally  good,  and  the  interest  paid  is  the 
price  of  the  insurance  which  the  latter  credit  receives  through  the  ex- 
change. This,  under  a  system  of  free  competition  in  banking,  would 
fall  to  cost,  or  less  than  1  per  cent  per  annum.  It  is  now  maintained  at 
varying  rates,  averaging  5  or  6  per  cent  by  giving  a  monopoly  of  this  ex- 
change of  credits  to  banks,  which,  in  addition  to  the  perfectly  sufficient 
insurance  afforded  by  the  centralization  of  their  customers'  credit, 
furnish  a  supposed  extra  security  by  pledging,  in  a  prescribed  form, 


20O3553 


MUTUAL  BANKING. 

capital  belonging  to  themselves,  thus  enabling  these  banks  to  offer  a 
pretext  for  charging  an  exorbitant  premium,  the  power  to  exact  which 
depends  in  reality  solely  upon  this  monopoly.  This  book  aims  at  the 
destruction  of  their  monopoly  by  allowing  perfect  freedom  in  banking, 
giving  to  all  credit  instruments  the  liberty  of  such  circulation  as  they 
can  command  upon  their  merits,  and  thereby  enabling  producers  to 
monetize  their  credit  directly  and  at  cost,  instead  of  through  the  media- 
tion of  a  prescribed  and  privileged  commodity  and  at  an  exorbitant 
price,  as  well  as  to  increase  the  circulating  power  of  their  credit  by 
methods  of  organization  and  insurance  similar  to  that  which  the  author 
proposes  under  the  name  of  mutual  banking. 

The  long-standing  feud  between  the  hard-money  advocates  and  the 
flatists  has  been  possible  only  because  each  has  persisted  in  looking  at 
only  one  side  of  the  shield.  The  former  demand  a  safe  currency;  the 
latter  desire  the  benefits  of  paper  money,  and  each  party  ignores  the 
other's  arguments.  This  feud  the  author  brings  to  an  end,  by  proposing 
a  paper  currency  secured  by  real  property,  thus  combining  the  safety  of 
coin  with  the  advantages  of  paper,  and  eliminating  the  evils  of  both. 
Whenever  a  theory  of  financial  reform  is  broached  that  involves  the  issue 
of  paper  money,  the  failures  of  paper  money  experiments  in  the  past  are 
brought  up  as  a  warning.  But  the  experiments  that  failed  after  a  fair 
trial  were  characterized  by  one  or  more  of  three  features  which  almost 
inevitably  bring  disaster,  and  which  mutual  banking  excludes: 

1.  The  issue  of  money  by  a  government,  or  under  an  exclusive  priv- 
ilege granted  by  one. 

2.  The  legal  tender  privilege. 

3.  Redemption  on  demand. 

When  the  power  to  issue  money  is  confined  to  privileged  banks,  the 
control  of  the  volume  of  currency  and  the  rate  of  interest  resides  in  a 
cabal,  which  will  sooner  or  later  use  its  power  to  drive  producers  into 
bankruptcy.  When  the  power  to  issue  money  is  confined  to  government 
itself,  losses  ultimately  ruinous  will  be  suffered  through  maladministra- 
tion by  incompetence,  or  by  fraud,  two  factors  whose  operations,  in  com- 
bination or  in  alternation,  constitute  the  history  of  almost  all  govern- 
mental undertakings. 

The  legal  tender  privilege  adds  no  virtue  to  good  money,  and  re- 
moves the  only  effective  cure  for  bad  money — the  right  to  reject  it.  To 
force  bad  money  on  people  is  as  surely  disastrous  as  to  force  bad  food  on 
them.  But  to  dwell  at  length  on  this  point  and  on  the  redemption  of 
notes  on  demand  would  anticipate  the  author's  argument. 

H.C. 

Denver,  Colorado,  March  1,  1919 


MUTUAL 


CHAPTER  I. 

THE  USURY  LAWS.* 

ALL  USURY  LAWS  appear  to  be  arbitrary  and  unjust.  Kent 
paid  for  the  use  of  all  lands  and  houses  is  freely  determined  in  the 
contract  between  the  landlord  and  tenant;  freight  is  settled  by  the 
contract  between  the  shipowner,  and  the  person  hiring  of  him; 
profit  is  determined  in  the  contractor  purchase  and  sale.  But,  when 
we  come  to  interest  on  money,  principles  suddenly  change;  here 
the  government  intervenes  and  says  to  the  capitalist,  "You  shall  in 
no  case  take  more  than  6  per  cent  interest  on  the  amount  of  prin- 
cipal you  loan.  If  competition  among  capitalists  brings  down  the 
rate  of  interest  to  3,  2,  or  1  per  cent,  you  have  no  remedy;  but  if,  on 
the  other  hand,  competition  among  borrowers  forces  that  rate  up 
to  7,  8  or  9  per  cent,  you  are  prohibited,  under  severe  penalties,  from 
taking  any  advantage  of  the  rise."  Where  is  the  morality  of  this 
restriction?  So  long  as  the  competition  of  the  market  is  permitted 
to  operate  without  legislative  interference,  the  charge  for  the  use 
of  capital  in  all  or  any  of  its  forms  will  be  properly  determined  by 
the  contracts  between  capitalists  and  the  persons  with  whom  they 
deal.  If  the  capitalist  charges  too  much,  the  borrower  obtains 
money  at  the  proper  rate  from  some  other  person;  if  the  borrower 
is  unreasonable,  the  capitalist  refuses  to  part  with  his  money.  If 
lands,  houses,  bridges,  canals,  boats,  wagons,  are  abundant  in  pro- 
portion to  the  demand  for  them,  the  charge  for  the  use  of  them  will 
be  proportionally  low;  if  they  are  scarce,  it  will  be  proportionally 
high.  Upon  what  ground  can  you  justify  the  legislature  in  making 
laws  to  restrict  a  particular  class  of  capitalists,  depriving  them  in- 
vidiously of  the  benefit  which  they  would  naturally  derive  from  a 
system  of  unrestricted  competition?  If  a  man  owns  a  sum  of 
money,  he  must  not  lend  it  for  more  than  6  per  cent  interest,  but  he 
may  buy  houses,  ships,  lands,  wagons,  with  it,  and  these  he  may 
freely  let  out  at  50  per  cent,  if  he  can  find  any  person  willing  to  pay 
at  that  rate.  Is  not  the  distinction  drawn  by  the  legislature  arbi- 
trary, and  therefore  unjust?  A  man  wishes  to  obtain  certain  lands, 

*This  work  is  a  compilation  of  a  series  of  newspaper  articles,  hence 
they  are  somewhat  disconnected,  and  an  occasional  repetition  will  be 
found.— EDITOR. 


8  MUTUAL  BANKING. 

wagons,  etc.,  and  applies  to  you  for  money  to  buy  them  with;  you 
can  lend  the  money  for  6  per  cent  interest,  and  no  more;  but  you 
can  purchase  the  articles  the  man  desires,  and  let  them  out  to  him 
at  any  rate  of  remuneration  upon  which  you  mutually  agree. 
Every  sound  argument  in  favor  of  the  intervention  of  the  legisla- 
ture to  fix  by  law  the  charge  for  the  use  of  money  bears  with  equal 
force  in  favor  of  legislative  intervention  to  fix  by  law  the  rent  of 
lands  and  houses,  the  freight  of  ships,  the  hire  of  horses  and  car- 
riages, or  the  profit  on  merchandise  sold.  Legislative  interference, 
fixing  the  rate  of  interest  by  law,  appears,  therefore,  to  be  both  im- 
politic and  unjust. 

EFFECT  OF  THE  REPEAL  OF  THE  USUBY  LAWS. 

But  let  logic  have  her  perfect  work.  Suppose  the  usury  laws 
were  repealed  today,  would  justice  prevail  tomorrow?  By  no 
means.  The  government  says  to  you:  "I  leave  you  and  your 
neighbor  to  compete  with  each  other;  fight  out  your  battles 
between  yourselves;  I  will  have  nothing  more  to  do  with  your  quar- 
rels." You  act  upon  this  hint  of  the  legislature;  you  enter  into 
competition  with  your  neighbor.  But  you  find  the  government  has 
lied  to  you;  you  find  the  legislature  has  no  intention  of  letting  you 
and  your  neighbor  settle  your  quarrels  between  yourselves.  Far 
from  it;  when  the  struggle  attains  its  height,  behold!  the  govern- 
ment quietly  steps  up  to  your  antagonist,  and  furnishes  him  with  a 
bowie  knife  and  a  revolver.  How  can  you,  an  unarmed  man,  con- 
tend with  one  to  whom  the  legislature  sees  fit  to  furnish  bowie 
knives  and  revolvers?  In  fact,  you  enter  the  market  with  your 
silver  dollar,  while  another  man  enters  the  market  with  his  silver 
dollar.  Your  dollar  is  a  plain  silver  dollar,  nothing  more  or  noth- 
ing less ;  but  his  doll ar  is  something  very  different,  for,  by  perm ission 
of  the  legislature,  he  can  issue  bank-bills  to  the  amount  of  f  1.25 
and  loan  money  to  the  extent  of  double  his  or  your  capital.  You  tel 
your  customer  that  you  can  afford  to  lend  your  dollar,  if  he  wil 
return  it  after  a  certain  time,  with  four  cents  for  the  use  of  it,  but 
that  you  cannot  lend  it  for  anything  less.  Your  neighbor  comes 
between  you  and  your  customer,  and  says  to  him,  "I  can  do  better 
by.  you  than  that.  Don't  take  his  dollar  on  any  such  terms,  for  I 
will  lend  you  a  dollar  and  charge  you  only  three  cents  for  the  use 
of  it."  Thus  he  gets  your  customer  away  from  you;  the  worst  of 
it  is  that  he  still  retains  another  dollar  to  seduce  away  the  next 
customer  to  whom  you  apply.  Nay,  more,  when  he  has  loaned  out 
his  two  dollars,  he  still  has  25  cents  in  specie  in  his  pocket  to  fall 
back  upon  and  carry  to  Texas  in  case  of  accident,  while  you,  if  you 
succeed  in  lending  your  dollar,  must  go  without  money  till  your 
debtor  pays  it  back.  Yet  you  and  he  entered  the  market,  each  with 
a  silver  dollar;  how  is  it  that  he  thus  obtains  the  advantage  over 
you  in  every  transaction?  The  BACKING  PRIVILEGE  which  the  gov- 
ernment has  given  him,  is  a  murderous  weapon  against  which  you 
cannot  contend. 


THE  USURY  LAWS. 


THE  USURY  LAWS  ARE  NECESSARY  UNDER  PRESENT  CIRCUMSTANCES. 

A  just  balance  and  just  weights!  Very  well;  but  if  we  have  an 
unjust  balance,  is  it  not  necessary  that  the  weights  should  be  un- 
just also?  A  just  balance  and  unjust  weights  give  false  measure, 
and  just  weights  with  an  unjust  balance  give  false  measure  in  like 
manner,  but  an  unjust  balance  and  unjust  weights*  may  be  so  ad- 
jusT-ed  as  to  give  true  measure.  Under  our  present  system,  the 
lender  who  is  not  connected  with  the  banks  may  be  oppressed,  but 
the  usury  laws  (unjust  as  they  are  when  considered  without  rela- 
tion to  the  false  system  under  which  we  live)  afford  some  protec- 
tion, at  least  to  the  borrower.  They  are  the  unjust  weights,  which, 
to  a  certain  extent,  justify  the  false  balance.  It  would  be  well  to 
have  a  just  balance  and  just  weights;  that  is,  it  would  be  well  to  re- 
peal the  usury  laws,  and  to  abolish,  not  only  the  banking  privilege, 
but  also,  as  we  shall  proceed  to  show,  the  exclusively  specie  basis  of 
the  currency;  but  it  will  not  do  to  put  new  wine  into  old  bottles,  nor 
to  mend  old  garments  with  new  cloth.  When  the  bank  lends  two  dol- 
lars, while  it  owns  only  one,  it  gets  twice  the  interest  it  is  actually 
entitled  to.  Insist,  if  you  will,  upon  retaining  your  peculiar  priv- 
ileges; but  consent  in  the  name  of  moderation  and  justice,  to  let  me 
protect  myself  by  the  usury  laws;  for  they  are  not  very  severe 
against  you  after  all.  The  usury  laws  confine  you  to  6  per  cent  in- 
terest on  whatever  you  loan,  but,  as  the  banking  laws  enable  you 
to  loan  twice  as  much  as  you  actually  possess,  you  obtain  12  per 
cent  interest  on  all  the  capital  you  really  own.  You  cannot  com- 
plain that  in  your  case  the  usury  laws  violate,  and  without  due 
compensation,  the  right  of  property;  for  you  only  own  one  dollar, 
and  yet  receive  interest  and  transact  business,  as  though  you  owned 
two  dollars.  The  usury  laws  are  necessary,  not  to  interfere  in  your 
right  to  your  own  property,  but  to  limit  you  in  the  abuse  of  the  un- 
just and  exclusive  privileges  granted  you  by  the  legislature.  The 
antagonism  between  the  usury  and  the  banking  laws  is  like  the 
division  of  Satan  against  Satan;  and,  through  their  internal  con- 
flict and  opposition,  the  modern  Hebrew  kingdom  may  one  day  be 
brought  to  destruction. 

ARGUMENT  IN  FAVOR  OF  THE  REPEAL  OF  THE  USURY  LAWS. 

But  let  us  now  examine  the  great  argument  in  favor  of  the 
immediate  repeal  of  the  usury  laws — an  argument  which,  according 
to  those  who  adduce  it,  is  in  every  way  unanswerable.  It  is  said  that 
all  the  above  considerations,  though  important  and  certainly  to  the 
point,  ought  to  have  very  little  weight  in  our  minds,  and  that  for 
the  following  reason:  MEN  DO,  notwithstanding  the  present  laws, 
take  exorbitant  interest;  and  whatever  usury  laws  may  be  passed, 
they  will  continue  so  to  do.  If  it  be  acknowledged  that  it  is  wrong 
to  take  too  high  interest,  that  acknowledgement  will  not  help  the 

*Take  the  STEELYARD  for  example. 


10  MUTUAL  BANKING. 

matter,  for,  though  we  acknowledge  the  wrong,  we  are  impotent  to 
prevent  it.  The  usury  laws  merely  add  a  new  evil  to  one  that  was 
bad  enough  when  it  was  alone.  Without  a  usury  law,  men  will 
take  too  high  interest;  for  they  have  the  power  to  do  it  as  credit  is 
now  organized,  and  no  legislation  can  prevent  them;  with  a  usury 
law  they  will  continue  to  take  unjust  interest,  and  will  have  re- 
course to  expedients  of  questionable  morality  to  evade  the  law.  If 
the  taking  of  too  high  interest  be  an  evil,  is  it  not  still  a  greater 
evil  for  the  community  to  demoralize  itself  by  evading  the  laws;  to 
demoralize  itself  by  allowing  individuals  to  have  recourse  to  sub- 
terranean methods  to  accomplish  an  end  they  are  determined  to  ac- 
complish at  all  events — an  end  which  they  cannot  accomplish  in  the 
light  of  day,  because  of  the  terror  of  the  law?  Thus  argue  the  ad- 
vocates of  immediate  repeal,  and  with  much  show  of  reason.  There 
are  a  hundred  ways  in  which  the  usury  laws  may  be  evaded. 

POWER   OF   CAPITAL  IN   THE  COMMONWEALTH  OF  MASSACHUSETTS. 

We  think  few  persons  are  aware  of  the  power  of  capital  in  this 
Commonwealth.  According  to  a  pamphlet  quoted  by  Mr.  Kellogg, 
containing  a  list  of  the  wealthy  men  of  Boston,  and  an  estimate  of 
the  value  of  their  property,  there  are  234  individuals  in  this  city  who 
are  worth,  in  the  aggregate,  $71,855,000;  the  average  wealth  of 
these  individuals  would  be  $321,781.  In  this  book,  no  estimate 
is  made  of  the  wealth  of  any  individual  whose  property  is  supposed 
to  amount  to  less  than  $100,000.  Let  us  be  moderate  in  our  estim- 
ates, and  suppose  that  there  are,  in  all  the  towns  and  counties  in 
the  state,  (including  Boston),  3,000  other  individuals  who  are  worth 
$30,000  each,  their  aggregate  wealth  would  amount  to  $90,000,000. 
Add  to  this  the  $71,855,000  owned  by  the  224  men,  and  we  have  $161,- 
855,000.  These  estimates  are  more  or  less  incorrect,  but  they  give 
the  nearest  approximation  to  the  truth  that  we  can  obtain  at  the 
present  time.  The  assessors'  valuation  of  the  property  in  the  State 
of  Massachusetts  in  1840*  was  $299,880,338.  We  find,  therefore,  by 
the  above  estimates,  that  3,224  individuals  own  more  than  half  of 
all  the  property  in  the  State.  If  we  suppose  each  of  these  3,224  per- 
sons to  be  the  head  of  a  family  of  five  persons,  we  shall  have  in  all 
16,120  individuals.  In  1840  the  State  contained  a  population  of  737,- 
700.  Thus  16,120  persons  own  more  property  than  the  remaining 
721,580;  that  is,  three  persons  out  of  every  hundred  own  more  prop- 
erty than  the  remaining  ninety-seven.  To  be  certain  that  we  are 
within  the  truth,  let  us  say  that  six  out  of  every  hundred  own  more 
property  than  the  remaining  ninety-four.  These  wealthy  persons 
are  connected  with  each  other,  for  the  banks  are  the  organization 
of  their  mutual  relation,  and  we  think,  human  nature  being  what  it 
is,  that  their  weight  would  be  brought  to  bear  still  more  powerfully 

•This  was  written  before  the  valuation  for  1850  was  taken.  As  the 
the  question  is  one  of  principles  rather  than  of  figures,  we  have  not  con- 
ceived it  necessary  to  rewrite  the  paragraph. 


THE  USURY  LAWS.  11 

upon  the  community  if  the  usury  laws  were  repealed.  These  per- 
sons might  easily  obtain  complete  control  over  the  banks.  They 
might  easily  so  arrange  matters  as  to  allow  very  little  money  to  be 
loaned  by  the  banks  to  any  but  themselves,  and  thus  they  would 
obtain  the  power  over  the  money  market  which  a  monopoly  always 
gives  to  those  who  wield  it — that  is,  they  would  be  able  to  ask  and 
to  obtain  pretty  much  what  interest  they  pleased  for  their  money. 
Then  there  would  be  no  remedy;  the  indignation  of  the  community 
would  be  of  no  avail.  What  good  would  it  do  you  to  be  indig- 
nant? You  would  go  indignantly,  and  pay  exorbitant  interest, 
because  you  would  be  hard  pushed  for  money.  You  would  get  no 
money  at  the  bank,  because  it  would  be  all  taken  up  by  the  heavy 
capitalists  who  control  those  institutions,  or  by  their  friends. 
These  would  all  get  money  at  6  per  cent  interest  or  less,  and  they 
would  get  from  you  precisely  that  interest  which  your  necessities 
might  enable  them  to  exact.  The  usury  laws  furnish  you  with 
some  remedy  for  these  evils;  for,  under  those  laws,  the  power  of 
demanding  and  obtaining  illegal  interest  will  be  possible  only 
so  long  as  public  opinion  sees  fit  to  sanction  evasions  of  the  statute. 
As  long  as  the  weight  of  the  system  is  not  intolerable  to  the  com- 
munity, every  thing  will  move  quietly;  but  as  soon  as  the  burden  of 
illegal  interest  becomes  intolerable,  the  laws  will  be  put  in  force  in 
obedience  to  the  demand  of  the  public,  and  the  evil  will  be  abated 
to  a  certain  extent.  We  confess  that  it  is  hard  for  the  borrower 
to  be  obliged  to  pay  the  broker,  to  pay  also  for  the  wear  and  tear  of 
the  lender's  conscience,  but  we  think  it  would  be  worse  for  him  if  a 
few  lenders  should  obtain  a  monopoly  of  the  market.  And  when 
the  usury  laws  are  repealed,  what  earthly  power  will  exist  capable 
of  preventing  them  from  exercising  this  monopoly?  But  here  an  in- 
teresting question  presents  itself:  "What  is  the  limit  of  the  power 
of  the  lender  over  the  borrower? 

ACTUAL,  VALUE  AND  LEGAL  VALUE. 

Let  us  first  explain  the  difference  between  legal  value  and  actual 
value.*  It  is  evident,  that,  if  every  bank-bill  in  the  country  should 
suddenly  be  destroyed,  no  actual  value  would  be  destroyed,  except 
perhaps  to  the  extent  of  the  value  of  so  much  waste  paper.  The 
holders  of  the  bills  would  lose  their  money,  but  the  banks  would 
gain  the  same  amount,  because  they  would  no  longer  be  liable  to  be 
called  upon  to  redeem  their  bills  in  specie.  Legal  value  is  the  legal 
claim  which  one  man  has  upon  property  in  the  hands  of  another. 
No  matter  how  much  legal  value  you  destroy,  you  cannot  by  that 
process  banish  a  single  dollar's  worth  of  actual  value,  though  you 
may  do  a  great  injustice  to  individuals.  But  if  you  destroy  the  sil- 
ver dollars  in  the  banks,  you  inflict  a  great  loss  on  the  community; 
for  an  importation  of  specie  would  have  to  be  made  to  meet  the  exi- 

*The  reader  is  requested  to  notice  this  distinction  between  actual  and 
legal  value,  as  we  shall  have  occasion  to  refer  to  it  again. 


12  MUTUAL  BANKING. 

gencies  of  the  currency,  and  this  importation  would  have  to  be  paid 
for  in  goods  and  commodities  which  are  of  actual  value.  When  a 
ship  goes  down  at  sea  with  her  cargo  on  board,  so  much  actual  value 
is  lost.  But,  on  the  other  hand,  when  an  owner  loses  his  ship  in 
some  unfortunate  speculation,  so  that  the  ownership  passes  from 
his  hands  into  the  hands  of  some  other  person,  there  may  be  no  loss 
of  actual  value,  as  in  the  case  of  shipwreck,  for  the  loss  may  be  a 
mere  change  of  ownership. 

The  national  debt  of  England  exceeds  $4,000,000,000.  If  there 
were  enough  gold  sovereigns  in  the  world  to  pay  this  debt,  and  these 
sovereigns  should  be  laid  beside  each  other,  touching  each  other, 
and  in  a  straight  line,  the  line  thus  formed  would  be  much  more 
than  long  enough  to  furnish  a  belt  of  gold  extending  around  the 
earth.  Yet  all  this  debt  is  mere  legal  value.  If  all  the  obligations 
by  which  this  debt  is  held  were  destroyed,  the  holders  of  the  debt 
would  become  poorer  by  the  amount  of  legal  value  destroyed;  but 
those  who  are  bound  by  the  obligations  (the  tax-paying  people  of 
England)  would  gain  to  the  same  amount.  Destroy  all  this  legal 
value,  and  England  would  be  as  rich  after  the  destruction  as  it  was 
before;  because  no  actual  value  would  have  been  affected.  The 
destruction  of  the  legal  value  would  merely  cause  a  vast  change  in 
the  ownership  of  property;  making  some  classes  richer,  and,  of 
course,  others  poorer  to  precisely  the  same  extent;  but  if  you  should 
destroy  actual  value  to.  the  amount  of  this  debt  you  would  destroy 
about  thirteen  times  as  much  actual  value  (machinery,  houses,  im- 
provements, products,  etc.)  as  exist  at  present  in  the  state  of  Mas- 
sachusetts. The  sudden  destruction  of  $4,000,000,000  worth  of  actual 
value  would  turn  the  British  Islands  into  a  desert.  Many  persons 
are  unable  to  account  for  the  vitality  of  the  English  government. 
The  secret  is  partly  as  follows:  The  whole  property  of  England  is 
taxed  yearly,  say  three  per  cent,  to  pay  the  interest  of  the  public 
debt.  The  amount  raised  for  this  purpose  is  paid  over  to  those  who 
own  the  obligations  which  constitute  this  legal  value.  The  people 
of  England  are  thus  divided  into  classes,  one  class  is  taxed  and  pays 
the  interest  on  the  debt,  the  other  class  receives  the  interest  and 
lives  upon  it.  The  class  which  receives  the  interest  knows  very 
well  that  a  revolution  would  be  followed  by  either  a  repudiation  of 
the  national  debt,  or  its  immediate  payment  by  means  of  a  ruinous 
tax  on  property.  This  class  knows  that  the  nation  would  be  no 
poorer  if  the  debt  were  repudiated  or  paid.  It  knows  that  a  large 
portion  of  the  people  look  upon  the  debt  as  being  the  result  of  aris- 
tocratic obstinacy  in  carrying  on  aristocratic  wars  for  the  accom- 
plishment of  aristocratic  purposes.  When,  therefore,  the  govern- 
ment wants  votes,  it  looks  to  this  privileged  class;  when  it  wants 
orators  and  writers,  it  looks  to  this  same  class;  when  it  wants  spe- 
cial constables  to  put  down  insurrection,  it  applies  to  this  same 
class.  The  people  of  England  pay  yearly  $120,000,000  (the  interest 
of  the  debt)  to  strengthen  the  hands  of  a  conservative  class,  whose 


THE  USURY  LAWS.  13 

function  it  is  to  prevent  all  change,  and  therefore  all  improvement 
in  the  condition  of  the  empire.  The  owners  of  the  public  debt,  the 
pensioners,  the  holders  of  sinecure  offices,  the  nobility,  and  the 
functionaries  of  the  Established  Church,  are  the  Spartans  who 
rule  over  the  English  Laconians,  Helots,  and  Slaves.  When  such 
powerful  support  is  enlisted  in  favor  of  an  iniquitous  social  order, 
there  is  very  little  prospect  left  of  any  amelioration  in  the  condition 
of  the  people. 

THE  MATTER  BROUGHT  NEARER  HOME. 

But  let  us  bring  the  matter  nearer  home.  The  assessors'  valua- 
tion of  the  property  in  the  state  of  Massachusetts  in  1790  was  $44,- 
034,349.  In  1840  it  was  $399,880,338.  The  increase,  therefore,  during 
fifty  years,  was  $255.855,989.  This  is  the  increase  of  actual  value. 
If,  now,  the  $44,034,349  which  the  state  possessed  in  1790  had  been 
owned  by  a  class,  and  had  been  loaned  to  the  community  on  six 
months'  notes,  regularly  renewed,  at  six  per  cent  interest  per  an- 
num, and  the  interest,  as  it  fell  due,  had  itself  been  continually  put 
out  at  interest  on  the  same  terms,  that  accumulated  interest  would 
have  amounted  in  fifty  years  to  $885,524,246.  This  is  the  increase  of 
the  legal  value.  A  simple  comparison  will  show  us  that  the  legal 
value  would  have  increased  three  times  as  fast  as  the  actual  value 
has  increased. 

Suppose  5,000  men  to  own  $30,000  each;  suppose  these  men  to 
move,  with  their  families,  to  some  desolate  place  in  the  state, 
where  there  is  no  opportunity  for  the  profitable  pursuit  of  the  occu- 
pations either  of  commerce,  agriculture,  or  manufacturing.  The 
united  capital  of  these  5,000  men  would  be  $150,000,000.  Suppose, 
now,  this  capital  to  be  safely  invested  in  different  parts  of  the 
state;  suppose  these  men  to  be,  each  of  them,  heads  of  families, 
comprising,  on  an  average,  five  persons  each,  this  would  give  us,  in 
all,  25,000  individuals.  A  servant  to  each  family  would  give  us 
5,000  persons  more,  and  these  added  to  the  above  number  would 
give  us  30,000  in  all.  Suppose,  now,  that  5,000  mechanics— shoe- 
makers, bakers,  butchers,  etc.— should  settle  with  their  families  in 
the  neighborhood  of  these  capitalists,  in  order  to  avail  themselves 
of  their  custom.  Allowing  five  to  a  family,  as  before,  we  have  25,- 
000  to  add  to  the  above  number.  We  have,  therefore,  in  all,  a  city 
of  55,000  individuals,  established  in  the  most  desolate  part  of  the 
state.  The  people  in  the  rest  of  the  state  would  have  to  pay  to  the 
capitalists  of  this  city  six  per  cent  on  $150,000,000  every  year;  for 
these  capitalists  have,  by  the  supposition,  this  amount  out  at  inter- 
est on  bond  and  mortgage,  or  otherwise.  The  yearly  interest  on 
$150,000,000,  at  six  per  cent,  is  $9,000,000.  These  wealthy  individuals 
may  do  no  useful  work  whatever,  and,  nevertheless,  they  levy  a  tax 
of  $9,000,000  per  annum  on  the  industry  of  the  state.  The  tax  would 
be  paid  in  this  way.  Some  money  would  be  brought  to  the  new 
city,  and  much  produce;  the  produce  would  be  sold  for  money  to 


14  MUTUAL  BANKING. 

the  capitalists,  and  with  the  money  thus  obtained,  added  to  the 
other,  the  debtors  would  pay  the  interest  due.  The  capitalists 
would  have  their  choice  of  the  best  the  state  produces,  and  the 
mechanics  of  the  city,  who  receive  money  from  the  capitalists,  the 
next  choice.  Now,  how  would  all  this  be  looked  upon  by  the  people 
of  the  commonwealth?  There  would  be  a  general  rejoicing  over 
the  excellent  market  for  produce  which  had  grown  up  in  so  unex- 
pected a  place,  and  the  people  would  suppose  the  existence  of  this 
city  of  financial  horse-leeches  to  be  one  of  the  main  pillars  of  the 
prosperity  of  the  state. 

Each  of  these  capitalists  would  receive  yearly  $1,800,  the  inter- 
est on  $30,000,  on  which  to  live.  Suppose  he  lives  on  $900,  the  half 
of  his  income,  and  lays  the  other  half  by  to  portion  off  his  children 
as  they  come  to  marriageable  age,  that  they  may  start  also  with 
$30,000  capital,  even  as  he  did.  This  $900  which  he  lays  by  every 
year  wonld  have  to  be  invested.  The  men  of  business,  the  men  of 
talent,  in  the  state,  would  see  it  well  invested  for  him.  Some  intel- 
ligent man  would  discover  that  a  new  railroad,  canal,  or  other  pub- 
lic work  was  needed;  he  would  survey  the  ground,  draw  a  plan  of 
the  work,  and  make  an  estimate  of  the  expenses;  then  he  would  go 
to  this  new  city  and  interest  the  capitalists  in  the  matter.  The  capi- 
talists would  furnish  money,  the  people  of  the  state  would  furnish 
labor;  the  people  would  dig  the  dirt,  hew  the  wood,  and  draw  the 
water.  The  intelligent  man  who  devised  the  plan  would  receive  a 
salary  for  superintending  the  work,  the  people  would  receive  day's 
wages,  and  the  capitalists  would  own  the  whole;  for  did  they  not 
furnish  the  money  that  paid  for  the  construction?  Taking  a  scien- 
tific view  of  the  matter,  we  may  suppose  the  capitalists  not  to  work 
at  all;  for  the  mere  fact  of  their  controlling  the  money  would  insure 
all  these  results.  We  suppose  them,  therefore,  not  to  work  at  all; 
we  suppose  them  to  receive,  each  of  them,  $1,800  a  year;  we  suppose 
them  to  live  on  one-half  of  this,  or  $900,  and  to  lay  up  the  other 
half  for  their  children.  We  suppose  new-married  couples  to  spring 
up,  in  their  proper  season,  out  of  these  families,  and  that  these  new 
couples  start,  also,  each  with  a  capital  of  $30,000.  We  ask  now,  is 
there  no  danger  of  this  new  city's  absorbing  unto  itself  the  greater 
portion  of  the  wealth  of  the  state? 

There  is  no  city  in  this  commonwealth  that  comes  fully  up  to 
this  ideal  of  a  faineant  and  parasite  city;  but  there  is  no  city  in  the 
state  in  which  this  ideal  is  not  more  or  less  completely  embodied. 

Suppose,  when  Virginia  was  settled  in  1607,  England  had  sold 
the  whole  territory  of  the  United  States  to  the  first  settlers  for 
$1,000,  and  had  taken  a  mortgage  for  this  sum  on  the  whole  prop- 
erty. $1,000  at  seven  per  cent  per  annum,  on  half-yearly  notes,  the 
interest  collected  and  reloaned  as  it  fell  due,  would  amount,  in  the 
interval  between  1607  and  1850,  to  $16,777,216,000.  All  the  property 
in  the  United  States,  several  times  over,  would  not  pay  this  debt. 

If  the  reader  is  interested  in  this  matter  of  the  comparative 


THE  USURY  LAWS.  15 

rate  of  increase  of  actual  and  legal  value,  let  him  consult  the 
treatise  of  Edward  Kellogg  on  "Labor  and  Other  Capital,"  where 
he  will  find  abundant  information  on  all  these  points. 

How  many  farmers  are  there  who  can  give  six  per  cent  interest 
and  ultimately  pay  for  a  farm  they  have  bought  on  credit? 

THE  ANSWER. 

What  answer,  then,  shall  we  return  to  the  question  relating  to 
the  power  of  the  lender  over  the  borrower?  We  are  forced  to  an- 
swer, that  the  borrowing  community  is,  under  the  existing  system 
of  credit,  VIRTUALLY,  according  to  appearances,  in  the  complete 
control  of  the  lending  community.  A  considerable  time  must  elapse 
before  this  control  is  actually  as  well  as  virtually  established,  but 
as  the  ship  in  the  eddy  of  the  maelstrom  is  bound  to  be  ultimately 
ingulfed,  so  the  producer  of  actual  value  (if  no  change  is  introduced 
in  the  system)  is  bound  to  be  brought  into  ultimate  complete  sub- 
jection to  the  holder  of  legal  value. 


CHAPTER  II. 

THE  CURRENCY. 

GOLD  and  silver  are  peculiarly  adapted  to  act  as  a  circulating 
medium.  They  are:  1.  Admitted  by  common  consent  to  serve  for 
that  purpose.  2.  They  contain  within  themselves  actual  intrinsic 
value,  equivalent  to  the  sum  for  which  they  circulate,  as  security 
against  the  withdrawal  of  this  consent,  or  of  the  public  estimation. 
3.  They  lose  less  by  the  wear  and  tear  and  by  the  effect  of  time,  than 
almost  any  other  commodities;  and,  4.  They  are  divisible  into  all 
and  any  of  the  fractional  parts  into  which  value  may  be,  or  neces- 
sarily is,  divided.  There  is  no  occasion  to  notice  particularly  in  this 
place  the  many  other  advantages  possessed  by  the  precious  metals. 
But  we  must  remember  that  when  we  exchange  anything  for  specie 
we  barter  one  commodity  for  another.  By  the  adoption  of  a  circu- 
lating medium  we  have  facilitated  barter,  but  we  have  not  done 
away  with  it — we  have  not  destroyed  it.  Specie  is  a  valuable  com- 
modity and  its  adoption  by  society  as  a  medium  of  exchange  does 
not  destroy  its  character  as  a  purchasable  and  salable  article. 
Let  Peter  own  a  horse;  let  James  own  a  cow  and  a  pig;  let  James's 
cow  and  pig,  taken  together,  be  worth  precisely  as  much  as  Peter's 
horse;  let  Peter  and  James  desire  to  make  an  exchange;  now,  what 
shall  prevent  them  from  making  the  exchange  by  direct  barter? 
Again!  let  Peter  own  the  horse;  let  James  own  the  cow;  and  let 
John  own  the  pig.  Peter  cannot  exchange  his  horse  for  the  cow, 
because  he  would  lose  by  the  transaction;  neither— and  for  the 
same  reason— can  he  exchange  it  for  the  pig.  The  division  of  the 
horse  would  result  in  the  destruction  of  its  value.  The  hide,  it  is 
true,  posesses  an  intrinsic  value;  and  a  dead  horse  makes  excellent 
manure  for  a  grapevine;  nevertheless,  the  division  of  a  horse  re- 
sults in  the  destruction  of  its  value  as  a  living  animal.  But  if 
Peter  barters  his  horse  with  Paul  for  an  equivalent  in  wheat,  what 
shall  prevent  him  from  so  dividing  his  wheat  as  to  qualify  himself 
to  offer  to  James  an  equivalent  for  his  cow  and  to  John  an  equiv- 
alent for  his  pig?  If  Peter  trades  thus  with  James  and  John  the 
transaction  is  still  barter,  though  the  wheat  serves  as  currency  and 
obviates  the  difficulty  in  making  change.  Now,  if  Paul  has  gold 
and  silver  to  dispose  of  instead  of  wheat,  the  gold  and  silver  are 
still  commodities  posessing  intrinsic  value,  and  every  exchange 
which  Paul  makes  of  these  for  other  commodities  is  always  a 
transaction  in  barter.  There  is  a  great  deal  of  mystification  con- 
nected with  the  subject  of  the  currency;  but  if  we  remember  that, 
when  we  sell  anything  for  specie,  we  BUY  the  specie,  and  that  when 


THE  CURRENCY.  17 

we  buy  anything  with  specie,  we  SELL  the  specie— our  ideas  will 
grow  wonderfully  clear. 

THE  DISADVANTAGES  OF  A  SPECIE  CURRENCY. 

The  governments  of  the  different  nations  have  made  gold  and 
silver  a  legal  tender  in  the  payment  of  debts.  Does  this  legislation 
change  the  nature  of  the  transactions  where  gold  and  silver  are 
exchanged  for  other  desirable  commodities?  Not  at  all.  Does  it 
transform  the  exchange  into  something  other  than  barter?  By  no 
means.  But  the  exchangeable  value  of  any  article  depends  upon 
its  utility,  and  the  difficulty  of  obtaining  it.  Now,  the  legislatures, 
by  making  the  precious  metals  a  legal  tender  enhance  their  utility 
in  a  remarkable  manner.  It  is  not  their  absolute  utility,  indeed,  that 
is  enhanced,  but  their  relative  utility  in  the  transactions  of  trade. 
As  soon  as  gold  and  silver  are  adopted  as  the  legal  tender,  they  are 
invested  with  an  altogether  new  utility.  By  means  of  this  new 
utility,  whoever  monopolizes  the  gold  and  silver  of  any  country— 
and  the  currency,  as  we  shall  soon  discover,  is  more  easily  monop- 
olized than  any  other  commodity— obtains  control  thenceforth,  over 
the  business  of  that  country;  for  no  man  can  pay  his  debts  without 
the  permission  of  the  party  who  monopolizes  the  article  of  legal 
tender.  Thus,  since  the  courts  recognize  nothing  as  money  in  the 
payment  of  debts  except  the  article  of  legal  tender,  this  party  is 
enabled  to  levy  a  tax  on  all  transactions  except  such  as  take  place 
without  the  intervention  of  credit.  1 

When  a  man  is  obliged  to  barter  his  commodity  for  money,  in 
order  to  have  money  to  barter  for  such  other  commodities  as  he 
may  desire,  he  at  once  becomes  subject  to  the  impositions  which 
moneyed  men  know  how  to  practice  on  one  who  wants  and  must 
have  money  for  the  commodity  he  offers  for  sale.  When  a  man  is 
called  upon  suddenly  to  raise  money  to  pay  a  debt,  the  case  is  still 
harder.  Men  whose  property  far  exceeds  the  amount  of  their  debts 
in  value— men  who  have  much  more  owing  to  them  than  they  owe 
to  others — are  daily  distressed  for  the  want  of  money;  for  the  want 
of  that  intervening  medium,  which,  even  when  it  is  obtained  in 
sufficient  quantity  for  the  present  purposes,  acts  only  as  a  mere  in- 
strument of  exchange. 

By  adopting  the  precious  metals  as  the  legal  tender  in  the  pay- 
ment of  debts,  society  confers  a  new  value  upon  them,  which  new 
value  is  not  inherent  in  the  metals  themselves.  This  new  value 
becomes  a  marketable  commodity.  Thus  gold  and  silver  become 
a  marketable  commodity  as  (QUOAD)  A  MEDIUM  OF  EXCHANGE. 
This  ought  not  so  to  be.  This  new  value  has  no  natural  measure, 
because  it  is  not  a  natural,  but  a  social  value.  This  new  social 
value  is  inestimable,  it  is  incommensurable  with  any  other  known 
value  whatever.  Thus  money,  instead  of  retaining  its  proper 
relative  position,  becomes  a  superior  species  of  commodity— super- 
ior not  in  degree,  but  in  kind.  Thus  money  becomes  the  absolute 


18  MUTUAL  BANKING. 

king  and  the  demigod  of  commodities.*  Hence  follow  great  social 
and  political  evils.  The  medium  of  exchange  was  not  established 
for  the  purpose  of  creating  a  new,  inestimable,  marketable  commo- 
dity, but  for  the  single  end  or  purpose  of  facilitating  exchanges. 
Society  established  gold  and  silver  as  an  instrument  to  mediate  be- 
tween marketable  commodities;  but  what  new  instrument  shall  it 
create  to  mediate  between  the  old  marketable  commodities,  and  the 
new  commodity  which  it  has  itself  called  into  being?  And  if  it  suc- 
ceed in  creating  such  new  instrument,  what  mediator  can  it  fa'nd  for 
this  new  instrument  itself,  etc.?  Here  the  gulf  yawns!  No  bridge 
save  that  of  TJSUKY  has  been  thrown,  as  yet,  over  this  gulf.  Our 
exposition  is  evidently  on  the  brink  of  the  infinite  series;  we  are 
marching  rapidly  forward  to  the  abyss  of  absurdity.  The  logicians 
know  well  what  the  sudden  appearance  of  the  infinite  series  in  an 
investigation  signifies;  it  signifies  the  recognition  of  a  phenomenon 
and  the  assigning  to  it  of  a  mere  concomitant,  to  stand  to  it  in  the 
place  of  cause.  The  phenomenon  we  here  recognize  is  circulation 
or  exchange,  and  we  ignore  its  cause,  for  we  endeavor  to  account 
for  it  by  the  movement  of  specie;  which  movement  is  neither  circu- 
lation nor  the  cause  of  circulation.  But  more  of  this  hereafter.  Let 
us  return  to  the  subject  with  which  we  are  more  immediately  con- 
cerned; noting,  meanwhile,  that  a  specie  currency  is  an  absurdity. 

THE  EVILS  OF  A  SPECIE  CURRENCY— USURY. 

Society  established  gold  and  silver  as  a  circulating  medium,  in 
order  that  exchanges  of  commodities  might  be  FACILITATED;  but 
society  made  a  mistake  in  so  doing;  for  by  this  very  act  it  gave  to  a 
certain  class  of  men  the  power  of  saying  what  exchanges  shall,  and 
what  exchances  shall  not,  be  FACILITATED  by  means  of  this  very 
circulating  medium.  The  monopolizers  of  the  precious  metals  have 
an  undue  power  over  the  community;  they  can  say  whether  money 
shall,  or  shall  not,  be  permitted  to  exercise  its  legitimate  functions. 
These  men  have  a  VETO  on  the  action  of  money,  and  therefore  on 
exchanges  of  commodity;  and  they  will  not  take  off  their  VETO  un- 
til they  have  received  usury,  or,  as  it  is  more  politely  termed,  inter- 
est on  their  money.  Here  is  the  great  objection  to  the  present  cur- 
rency. Behold  the  manner  in  which  the  absurdity  inherent  in  a 
specie  currency — or,  what  is  still  worse,  in  a  currency  of  paper 
based  upon  specie— manifests  itself  in  actual  operation!  The  me- 
diating value  which  society  hoped  would  facilitate  exchanges  be- 
comes an  absolute  marketable  commodity,  itself  transcending  all 
reach  of  mediation.  The  great  natural  difficulty  which  originally 
stood  in  the  way  of  exchanges  is  now  the  private  property  of  a 
class,  and  this  class  cultivate  this  difficulty,  and  make  money  out 
of  it,  even  as  a  farmer  cultivates  his  farm  and  makes  money  by  nis 
labor.  But  there  is  a  difference  between  the  farmer  and  the  usurer; 

•Money  is  merchandise  just  like  any  other  merchandise,  precisely  as 
the  TRUMP  is  a  card  just  like  any  other  card. 


THE  CURRENCY.  19 

for  the  farmer  benefits  the  community  as  well  as  himself,  while 
every  dollar  made  by  the  usurer  is  a  dollar  taken  from  the  pocket 
of  some  other  individual,  since  the  usurer  cultivates  nothing  but  an 
actual  obstruction. 

THE  MONOPOLY  OF  THE  CURRENCY. 

The  exigencies  of  our  exposition  render  it  necessary  that  we 
should  state  here  three  distinct  points,  as  a  basis  for  certain  re- 
marks that  we  propose  to  submit  to  the  reader: 

1.  Let  us  suppose,  in  order  to  make  a  thorough  estimate  of  the 
amount  of  money  circulating  in  Massachusetts,  that  each  individ- 
ual in  the  state — man,  woman,  or  child — posesses  $10  in  specie,  or  in 
the  bills  of  specie-paying  banks.    The  population  of  the  state  was, 
in  the  year  1850,  about  1,000,000.    Our  estimate  will  give  us,  there- 
fore, about  $10,000,000  as  the  total  amount  of  the  circulating  medi- 
um of  the  state.    This  is  perhaps  a  very  extravagant  supposition; 
but  we  desire  to  make  a  high  estimate,  as  the  greater  the  amount 
of  the  circulating  medium,  the  less  will  be  the  force  of  our  objec- 
tions against  the  existing  currency.    Now,  since  children  seldom 
control  any  money,  our  hypothesis  apportions  to  each  full-grown 
person  an  average  of  $20 — for  the  children  constitute  at  least  one- 
half  of  the  community;  and  since  women,  who  constitute  one-half 
of  the  grown  population,  generally  leave  their  money  with  their 
husbands  or  fathers,  it  apportions  to  each  full-grown  man  an  aver- 
age of  $40.    We  feel  confident  that  the  reader  will  confess,  after 
consulting  his  pocket-book,  that  our  estimate  marks  as  high  as  the 
circumstances  of  the  case  will  warrant.    But  to  be  certain  that  we 
do  not  fall  below  the  truth,  let  us  double  the  total  sum  and  say  that 
the  amount  of  money  circulating  in  Massachusetts  is,  on  an  aver- 
age, $20,000,000.     This  is  our  first  point. 

2.  The  valuation  of  the  taxable  property  existing  in  the  state 
of  Massachusetts,  was,  for  the  year  1850,  about  $600,000,000— or  an 
average  of  about  $600  for  every  man,  woman  and  child  in  the  state; 
or  an  average  of  about  $2,400  for  every  family  of  four  persons— no 
contemptible  fortune  for  a  workingman!    Now,  every  person  of 
ordinary  observation  will  recognize  that  this  valuation  is  too  high. 
We  are  willing  to  confess  that  the  wealth  of  the  state  is  unjustly 
distributed;  but  we  are  not  willing  to  confess  that  the  distribution 
is  of  the  absolutely  flagrant  character  indicated  by  the  valuation; 
for  if  a  man  posessing  a  mere  average  amount  of  wealth,  owns  prop- 
erty to  the  value  of  $600  and  a  like  amount  in  addition  for  his  wife 
and  for  each  of  his  children,  where  is  the  immense  mass  of  wealth 
which  the  average  would  apportion  to  those  who  actually  own  less 
than  $600;  yes,  to  those  who  actually  own  nothing?    We  conceive 
that  it  is  not  altogether  impossible  to  penetrate  the  motives  which 
induced  the  Valuation  Committee  to  mark  the  wealth  of  the  State 
as  high  as  $600,000,000.    Indeed  we  may  take  occasion  as  we  proceed 
with  our  observations  to  indicate  those  motives.    But  let  us  grant, 


20  MUTUAL  BANKING. 

for  the  sake  of  argument,  that  the  people  of  Massachusetts,  taken  as 
a  whole,  do  actually  own  property  to  the  value  of  §600,000,000.  Esti- 
mating as  we  have  done,  the  total  value  of  the  circulating  medium 
at  820,000,000,  it  would  follow  that  there  is  one  dollar  of  currency 
for  every  thirty  dollars  of  taxable  property.  This  is  our  second 
point. 

3.  If  Mr.  Kellogg's  statements  are  worthy  of  confidence,  there 
are  in  the  city  of  Boston  224  individuals  who  are  worth,  in  the  ag- 
gregate, 171,855,000,  or  property  to  the  value  of  about  three  and 
one-half  times  the  amount  of  the  whole  circulating  medium  of  the 
commonwealth.  This  is  our  third  point. 

Having  stated  the  three  points  upon  which  our  reasoning  is  to 
turn,  we  will  now  suppose  that  these  individuals  in  Boston,  or  224 
other  persons  of  equal  wealth,  residing  either  in  Boston  or  in  other 
towns  or  cities  in  the  state,  see  fit  to  combine  together  for  the  pur- 
pose of  bringing  the  whole  property  of  the  state  (1600,000,000)  into 
their  own  possession.  They  may  accomplish  their  object  by  the 
following  simple  process:  Let  them  gradually  buy  up  desirable 
real  estate  situated  in  various  parts  of  the  commonwealth,  to  the 
value  of  $40,000,000— double  the  total  amount  of  the  circulating 
medium.  Then  let  them  sell  this  real  estate  to  different  persons, 
taking  mortgages  for  half  of  its  value  on  the  property,  and  stipu- 
lating that  the  payments  on  the  mortgages  shall  be  made,  all  of 
them,  on  a  certain  specified  day.  Here  is  the  whole  story;  for  mark 
the  consequences!  As  the  day  for  payment  on  the  mortgages  ap- 
proaches, money  will  grow  scarce,  for  the  reason  that  the  purchas- 
ers of  the  real  estate  will  be  preparing  themselves  to  meet  the 
claims  upon  them;  money  will,  by  consequence,  rise  rapidly  in  val- 
ue; trade  will  be  gradually  blocked  up;  and  men  of  undoubted 
wealth  will  be  closely  pressed.  If— and  they  probably  will  not— but 
IF  the  purchasers  of  the  real  estate  actually  pay  their  debts  when 
the  day  comes  round,  then  the  224  confederates  will  have  all  the 
money  of  the  state  in  their  hands.  Meanwhile  the  other  ordinary 
debts  of  the  community — debts  which  arise  naturally — will  have  to 
be  paid  also;  and  money,  the  only  legal  tender,  will  be  required  in 
order  to  effect  their  payment.  But  as  no  money  will  be  obtainable, 
these  last  debtors  will  fail  and  their  property  will  be  sold  under  the 
hammer  at  a  fraction  of  its  true  value  to  satisfy  their  creditors.  But 
who  will  buy  this  property?  Who  besides  the  224  confederates  will 
have  any  available  funds?  These  224  individuals,  by  their  opera- 
tion, notwithstanding  the  losses  they  will  inevitably  meet  with, 
will  thus  obtain  control,  by  means  of  their  $40,000,000— a  little  less 
than  one-half  of  their  aggregate  property— of  the  greater  part  of 
the  property  of  the  state.  There  is  no  danger  that  so  extensive  an 
operation  will  ever  take  place,  for  transactions  like  this  would  con- 
vulse society  to  its  foundations,  and  would  necessarily  be  accom- 
panied by  repudiation,  revolution  and  bloodshed.  But  similar 
operations  on  a  smaller  scale  are  taking  place  every  day.  It  is 


THE  CURRENCY.  21 

stated  in  the  reports  published  by  the  Valuation  Committee  that 
the  money  loaned  out  at  interest  and  returned  as  such  to  the 
assessors  for  the  year  1850,  amounted  in  the  single  county  of 
Worcester,  to  more  than  $5,000,000 — more  than  one-fourth  of  the 
whole  circulating  medium  of  the  commonwealth.  What  must  have 
been  the  consequence  if  all  these  debts  had  happened  to  fall  due  at 
nearly  the  same  time? 

You  cannot  monopolize  corn,  iron  and  other  commodities,  as 
you  can  money;  for  to  do  so,  you  would  be  obliged  to  stipulate  in 
your  sales  that  payment  shall  be  made  to  you  in  those  commodities. 
What  a  commotion  would  exist  in  the  community  if  a  company  of 
capitalists  should  attempt  permanently  to  monopolize  all  the  corn! 
But  money,  by  the  nature  of  the  case,  SINCE  IT  is  THE  ONLY  LEGAL 
TENDER,  is  ALWAYS  monopolized.  This  fact  is  the  foundation  of 
the  right  of  society  to  limit  the  rate  of  interest. 

We  conclude,  therefore,  that  gold  and  silver  do  not  furnish  a 
perfect  medium  of  circulation;  that  they  do  not  furnish  facilities 
for  the  exchange  of  ALL  commodities.  Gold  and  silver  have  a  value 
as  MONEY;  a  value  which  is  artificial,  and  created  UNINTENTION- 
ALLY by  the  act  of  society  establishing  the  precious  metals  as  a 
legal  tender.  This  new  artificial  value  overrides  all  intrinsic  actu- 
al values,  and  suffers  no  mediation  between  itself  and  them.  Now, 
money,  so  far  forth  as  it  is  mere  money,  ought  to  have  NO  VALUE; 
and  the  objection  to  the  use  of  the  precious  metals  as  currency  is, 
that  as  soon  as  they  are  adopted  by  society  as  a  legal  tender,  there  is 
superadded  to  their  natural  value  this  new,  artificial  and  unnatural 
value.  Gold  and  silver  cannot  facilitate  the  purchase  of  this  new 
value  which  is  added  to  themselves;  "a  mediator  is  not  a  mediator 
of  one."  USURY  is  the  characteristic  fact  of  the  present  system 
of  civilization;  and  usury  depends  for  its  existence  upon  this  super- 
added,  social,  unnatural  value,  which  \?  given  artificially  to  the 
material  of  the  circulating  medium.  Destroy  the  value  of  this 
material  AS  MONEY  (not  its  utility  or  availability  in  exchange)  and 
you  destroy  the  possibility  of  usury.  Can  this  be  done  so  long  as 
material  is  gold  or  silver?  No. 

Whatever  is  adopted  as  the  medium  of  exchange  should  be  free 
from  the  above-named  objections.  It  should  serve  the  purpose  of 
facilitating  ALL  exchanges;  it  should  have  no  value  AS  MONEY;  it 
should  be  of  such  a  nature  as  to  permit  nothing  marketable,  noth- 
ing that  can  be  bought  or  sold,  to  transcend  the  sphere  of  its 
mediation.  It  should  exist  in  such  quantity  as  to  effect  all  ex- 
changes which  may  be  desirable.  It  should  be  co-existent  in  time 
and  place  with  such  property  as  is  destined  for  the  market.  It 
should  be  sufficiently  abundant  and  easy  of  acquirement,  to  answer 
all  the  legitimate  purposes  of  money.  It  should  be  capable  of  being 
expanded  to  any  extent  that  may  be  demanded  by  the  wants  of  the 
community;  for  if  the  currency  be  not  sufficiently  abundant,  it  re- 
tards instead  of  facilitating  exchanges.  On  the  other  hand,  this 


22  MUTUAL  BANKING. 

medium  of  exchange  should  be  sufficiently  difficult  of  acquirement 
to  keep  it  within  just  limits. 

Can  a  currency  be  devised  which  shall  fulfill  all  these  condi- 
tions? Can  a  currency  be  adopted  which  shall  keep  money  always 
just  plenty  enough,  without  suffering  it  ever  to  become  too  plenty? 
Can  such  a  currency  be  established  on  a  firm,  scientific  foundation,  so 
that  we  may  know  beforehand  that  it  will  work  well  from  the  very 
first  moment  of  its  establishment?  Can  a  species  of  money  be 
found  which  shall  posess  EVERY  quality  which  it  is  desirable  that 
money  should  have,  while  it  posesses  NO  quality  which  it  is  desir- 
able that  money  should  not  have?  To  all  these  questions  we 
answer,  emphatically,  YES! 


CHAPTER  III. 

THE  CURRENCY:  ITS  EVILS  AND  THEIR  REMEDY. 

BANK-BILLS  are  doubly  guaranteed.  On  one  side  there  is  the 
capital  of  the  bank,  which  is  liable  for  the  redemption  of  the  bills 
in  circulation;  on  the  other  side  are  the  notes  of  the  debtors  of  the 
bank,  which  notes  are  (or  ought  to  be,  if  the  bank  officers  exercise 
due  caution  and  discretion)  a  sufficient  guaranty  for  all  the  bills:  for 
no  bills  are  issued  by  any  bank,  except  upon  notes  whereby  some  re- 
sponsible person  is  bound  to  restore  to  the  bank,  after  a  certain 
lapse  of  time,  money  to  the  amount  borne  on  the  face  of  the  bills. 
If  the  notes  given  by  the  receivers  of  the  bills  are  good,  then  the 
bills  themselves  are  also  good.  If  we  reflect  a  moment  upon  these 
facts,  we  shall  see  that  a  bank  of  discount  and  circulation  is  in 
reality,  two  banks  in  one.  There  is  one  bank  which  does  business 
on  the  specie  capital  really  paid  in;  there  is  another  and  a  very 
different  bank,  which  does  business  by  issuing  bills  in  exchange  for 
notes  whereby  the  receivers  of  the  bills  give  security  that  there 
shall  be  paid  back  by  a  certain  time,  money  to  the  amount  of  the 
bills  issued.  Let  us  now  investigate  the  nature  of  these  two  differ- 
ent banks. 

THE  BUSINESS  OF  BANKING. 

Peter  goes  into  the  banking  business  with  one  dollar  capital, 
and  immediately  issues  bills  to  the  amount  of  one  dollar  and 
twenty-five  cents.  Let  us  say  that  he  issues  five  bills,  each  of 
which  is  to  circulate  for  the  amount  of  twenty-five  cents.  James 
comes  to  the  bank  with  four  of  Peter's  bills,  and  says:  "Here  are 
four  of  your  new  twenty-five  cent  notes  which  purport  to  be  payable 
on  demand,  and  I  will  thank  you  to  give  me  a  silver  dollar  for  them." 
Peter  redeems  the  bills  and  in  so  doing  pays  out  his  whole  capital. 
Afterward  comes  John,  with  the  fifth  note,  and  makes  a  demand 
similar  to  that  lately  made  by  James.  Peter  answers,  slowly  and 
hesitatingly:  "I  regret— exceedingly— the  force  of  present  circum- 
stances; but — I — just  paid— out  my  whole  capital — to  James.  I  am 
—under— the  painful  necessity— of  requesting  you— to  wait  a  little 
longer  for  your  money."  John  at  once  becomes  indignant  and 
says:  "Your  bills  state  on  their  face  that  you  will  pay  twenty-five 
cents  upon  each  one  of  them  whenever  they  are  presented.  I  present 
one  NOW.  Give  me  the  money,  therefore,  without  more  words,  for 
my  business  is  urgent  this  morning."  Peter  answers:  "I  shall  be 
in  a  condition  to  redeem  my  bills  by  the  day  after  tomorrow;  but 
for  the  meanwhile,  my  regard  for  the  interest  of  the  public  forces 
me  unwillingly  to  suspend  specie  payments."  "Suspend  SPECIE  pay- 
ments!" says  John.  "What  other  kind  of  payment,  under  Heaven, 


24  MUTUAL  BANKING. 

could  you  suspend?  You  agree  to  pay  SPECIE;  for  specie  is  the  only 
legal  tender  and  when  you  don't  pay  that,  you  don't  pay  anything. 
When  you  don't  pay  that  YOU  BREAK.  Why  don't  you  own  up  at 
once?  But  while  I  am  about  it  I  will  give  you  a  piece  of  my  mind; 
this  extra  note  which  you  have  issued  beyond  your  capital  is  a  vain 
phantom,  a  hollow  humbug  and  a  fraud.  And  as  for  your  bank, 
you  would  better  take  in  your  sign;  for  you  have  broken."  "These 
be  very  bitter  words,"  as  said  the  hostess  of  the  Boar's  Head 
Tavern  at  Eastcheap. 

John  is  right.  Peter's  capital  is  all  gone  and  the  note  for 
twenty- eve  cents,  which  professes  to  represent  specie  in  Peter's 
vaults,  represent  the  tangibility  of  an  empty  vision,  the  shadow  of 
a  vacuum.  But  which  bank  is  it  that  is  broken?  Is  it  the  bank 
that  does  business  on  a  specie  capital,  or  the  bank  which  does 
business  on  the  notes  of  the  debtors  to  the  bank?  Evidently  it  is 
the  bank  that  does  business  on  the  specie  capital  that  is  broken;  it 
is  the  specie-paying  bank  that  has  ceased  to  exist. 

John  understands  this  very  well  notwithstanding  his  violent 
language  a  moment  since,  he  knows  that  his  is  the  only  bill  which 
Peter  has  in  circulation,  and  that  Peter  owes,  consequently,  only 
twenty-five  cents;  he  knows  also  that  the  bank  has  owing  to  it  one 
dollar  and  twenty-five  cents.  Peter  owes  twenty-five  cents  and 
has  owing  to  him  a  dollar  and  twenty- five  cents.  John  feels, 
therefore,  perfectly  safe.  What  is  John's  security?  Is  it  the  spe- 
cie capital?  Not  at  all.  James  has  taken  the  whole  of  that.  He 
has  for  his  security  the  debts  which  are  owing  to  the  bank.  Peter's 
bank  begins  now  to  be  placed  in  a  sound,  philosophical  condition. 
At  first  he  promised  to  pay  one  dollar  and  twenty-five  cents  in 
specie,  while  he  actually  posessed  only  one  dollar  with  which  to  meet 
the  demands  that  might  be  made  upon  him.  How  could  he  have 
made  a  more  unreasonable  promise,  even  if  he  had  tried?  Now 
that  he  has  suspended  specie  payments,  he  has  escaped  from  the 
unphilosophical  situation  in  which  he  so  rashly  placed  himself. 
Peter's  bank  is  still  in  operation— it  is  by  no  means  broken;  his  bills 
are  good,  guaranteed,  and  worthy  of  considerable  confidence;  only 
his  bank  is  now  a  simple  and  not  a  complex  bank,  being  no  longer 
two  banks  in  one,  for  the  specie-paying  element  has  vanished  in  in- 
finite darkness. 

CURRENCY. 

And  here  we  may  notice  that  Peter  has  solved,  after  a  rough 
manner  indeed,  one  of  the  most  difficult  questions  in  political 
economy.  His  bill  for  twenty-five  cents  is  CURRENCY,  and  yet  it  is 
not  based  upon  specie,  nor  directly  connected  in  any  way  with 
specie.  We  would  request  the  reader  to  be  patient  with  us  and  not 
make  up  his  mind  in  regard  to  our  statements  until  he  has  read  to 
the  end  of  the  chapter;  it  shall  not  be  very  long.  Light  breaks  on 
us  here,  which  we  would  endeavor  to  impart  to  the  reader.  The 
security  for  the  bill  is  legal  value,  the  security  in  actual  value  hav- 


THE  CURRENCY:  ITS  EVILS— THEIR  REMEDY.    25 

ing  been  carried  away  by  James — that  is,  the  security  for  the  bill  is 
the  legal  claim  which  the  bank  has  upon  the  property  of  its  debt- 
ors. We  see,  therefore,  that  LEGAL  VALUE  may  be  made  a  basis  for 
the  issue  of  notes  to  serve  as  currency;  we  see,  therefore,  the  faint 
indication  of  a  means  whereby  we  may  perhaps  emancipate  our- 
selves from  the  bondage  of  hard  money,  and  the  worse  bondage  of 
paper  which  pretends  to  be  a  representative  of  hard  money. 

Let  the  reader  not  be  alarmed.  We  abominate  banks  that  sus- 
pend specie  payment  as  much  as  he  does.  The  run  of  our  argu- 
ment leads  us  through  this  desolate  valley;  but  we  shall  soon 
emerge  into  the  clear  day.  Good  may  come  out  of  this  dark  region, 
although  we  never  expected  to  find  it  here.  For  our  part,  how- 
ever, we  will  freely  confess,  in  private  to  the  reader,  that  we  have 
lately  been  so  accustomed  to  see  good  come  out  of  Nazareth  that 
we  have  acquired  the  habit  of  never  expecting  it  from  any  other 
quarter.  Let  us  spend  a  moment,  therefore,  in  exploring  this  bank- 
ing Nazareth. 

We  may  notice  in  considering  a  bank  that  has  suspended  specie 
payments:  1.  The  BANK  OFFICERS,  who  are  servants  of  the  STOCK- 
HOLDERS; 2.  The  BILLS  which  are  issued  by  the  bank-officers,  and 
which  circulate  in  the  community  as  money;  and,  3.  The  NOTES  of 
the  debtors  of  the  bank,  binding  these  debtors,  which  notes,  depos- 
ited in  the  safe,  are  security  for  the  bills  issued.  Let  us  now  take 
for  illustration,  a  non-specie-paying  bank  that  shall  be  "perfect 
after  its  kind;"  that  is  a  bank  whose  capital  shall  be,  in  ACTUAL 
value,  literally=0.  Suppose  there  are  100  stockholders;  suppose 
$100,000  worth  of  bills  to  be  in  circulation  and  that  8100,000  LEGAL 
value  is  secured  to  the  bank  by  notes  given  by  the  bank's  debtors. 
These  stockholders  will  be  remarkable  individuals,  doing  business 
after  a  very  singular  fashion.  For  example:  The  stockholders 
own  stock  in  this  bank;  but  as  the  whole  joint  stock  equals  zero, 
each  stock-holder  evidently  owns  only  the  one-hundredth  part  of 
nothing— a  species  of  property  that  counts  much  or  little,  according 
to  the  skillfulness  with  which  it  is  administered.  The  stockholders, 
through  the  agency  of  the  bank-officers,  issue  their  paper,  BEARING 
NO  INTEREST;  exchanging  it  for  other  paper,  furnished  by  those 
who  receive  the  bills,  BEARING  INTEREST  AT  THE  RATE  OF  six 
PER  CENT  PER  ANNUM.  The  paper  received  by  the  bank  binds  the 
debtor  to  the  bank  to  pay  interest;  while  the  paper  issued  by  the 
bank  puts  it  under  no  obligation  to  pay  any  interest  at  all.  Thus 
the  stockholders  doing  business  with  no  capital  whatever,  make  six 
per  cent  per  annum  on  a  pretended  $100,000  of  ACTUAL,  value  which 
does  not  exist!  Yet,  meanwhile,  these  stockholders  furnish  the 
community  with  an  available  currency;  this  fact  ought  always  to 
be  borne  in  mind.  Non-specie-paying  banks,  of  course,  make  div- 
idends. During  the  suspension  of  1837  and  1838,  all  the  banks  of 
Pennsylvania  made  dividends,  although  it  was  prohibited  in  the 
charters  of  most  of  them.  After  the  suspension  which  took  place 


26  MUTUAL  BANKING. 

in  Philadelphia  in  October,  1839,  most  of  the  banks  of  that  city  re- 
solved not  to  declare  dividends  until  the  pleasure  of  the  legislature 
could  be  known.  By  an  act  authorizing  the  continuance  of  the 
suspension  until  the  15th  of  January,  1841,  permission  was  granted 
to  make  dividends,  contrary  to  every  principle  of  justice  and  equity. 
We  do  not  know  why  we  speak  especially  of  the  Pennsylvania 
banks  in  this  connection;  as  we  have  yet  to  hear  of  the  first  bank, 
either  in  Pennsylvania  or  in  any  other  State,  that  has  had  the  deli- 
cacy to  suspend  the  declaration  of  dividends  merely  because  it  sus- 
pended specie  payments. 

THE  MUTUAL,  BANK. 

Our  non-specie-paying  bank  being  in  the  interesting  position 
described,  let  us  inquire  whether  it  is  not  in  the  process  of  bringing 
forth  something  which  shall  be  entirely  different  from  itself.  We 
ask  first,  why  a  non-specie-paying  bank  should  be  permitted  to 
make  dividends.  Its  bills  are  perfectly  good,  whether  the  bank 
have  any  capital  or  not,  provided  the  officers  exercise  due  discre- 
tion in  discounting  notes;  and  it  is  evident  that  the  stockholders 
have  no  right  to  ask  to  be  paid  for  the  use  of  their  capital,  since  the 
capital  in  question  ought  to  be  specie,  which  they  confess,  by  sus- 
pending specie  payments,  that  they  do  not  furnish.  But  if  no  div- 
idends are  to  be  declared,  what  are  we  to  do  with  the  immense 
amount  of  interest-money  that  will  accumulate  in  the  bank.  Our 
answer  to  this  question  is  so  simple  that  we  are  almost  ashamed  to 
state  it.  Justice  requires  that  all  the  interest-money  accumulated 
—so  much  only  excepted  as  is  required  to  pay  the  expenses  of  the 
institution  and  the  average  of  loss  by  bad  debts — should  be  paid 
back  to  the  borrowers  in  the  proportion  of  the  business  which  they 
have  individually  done  with  the  bank.  But  since  it  would  be  by  no 
means  easy,  practically,  to  thus  pay  the  extra  interest-money  back, 
it  would  be  better  for  the  bank  to  turn  the  difficulty  by  lending  its 
money  at  precisely  that  rate  of  interest  and  no  more,  say  one  per 
cent  per  annum,  which  would  suffice  to  pay  the  expenses  of  the  in- 
stitution, including  the  average  loss  by  bad  debts.  A  bank  of  this 
character  would  be  a  MUTUAL  BANK.  This  is  not  the  institution 
we  advocate  and  of  which  we  propose  to  submit  a  plan  to  the 
reader;  but  it  will  serve  in  this  place  for  the  purposes  of  illustra- 
tion. A  bank  that  suspends  specie  payments  may  present  two  evi- 
dent advantages  to  the  community — first,  it  may  furnish  a  cur- 
rency; second,  it  may  loan  out  its  bills  at  one  per  cent  interest  per 
annum.  That  such  a  bank  may  furnish  currency  is  proved  by 
abundant  experience,  for  suspending  banks  go  right  on  with  their 
business,  and  that  their  money  circulates  well  is  proved  by  the  fact 
that  such  banks  have  hitherto  seldom  failed  to  declare  good  divi- 
dends. That  they  may  loan  their  money  at  one  per  cent  interest 
per  annum  is  shown  by  the  fact  that  the  old  banks  do  not  pay  more 
than  one  per  cent  per  annum  for  their  expenses',  including  losses  by 
bad  debts,  and  that  the  guaranty  of  the  new  bills  consists  in  the 


THE  CURRENCY:  ITS  EVILS-THEIR  REMEDY.    27 

excellence  of  the  notes  furnished  by  the  borrower,  so  that, 
if  there  is  anything  to  be  paid  for  this  guaranty,  it  ought  to 
be  paid  to  the  borrower  himself,  and  not  to  any  other  person. 
We  will  not  prolong  this  exposition,  since  a  multiplicity  of  words 
would  serve  only  to  darken  the  subject.  We  invite  the  reader  to 
reflect  for  himself  upon  the  matter  and  to  form  his  own  conclu- 
sions. We  repeat  that  we  do  not  advocate  a  bank  of  the  nature 
here  described,  since  we  conceive  that  such  an  institution  would  be 
eminently  unsafe  and  dangerous,  and  for  a  hundred  reasons  among 
which  may  be  counted  the  inordinate  power  that  would  be  con- 
ferred on  the  bank's  officers;  but,  as  we  said  before,  it  may  serve 
for  illustration.  Neither  do  we  propose  this  plan  as  a  theoretical 
solution  of  the  difficulties  noticed  in  the  preceeding  chapters  as 
inseparable  from  the  existing  currency.  We  reserve  our  own  plan, 
and  shall  submit  it  to  the  reader  at  the  end  of  the  next  chapter. 


CHAPTER  IV. 

MUTUAL  BANKING. 

IN  the  title-page  of  a  book  on  ''Money  and  Banking,*"  pub- 
lished at  Cincinnati,  the  name  of  William  Beck  appears,  not  as 
author,  but  as  publisher;  yet  there  is  internal  evidence  in  the  book 
sufficient  to  prove  that  Mr.  Beck  is  the  author.  But  who  was  or  is 
Mr.  Beck?  What  were  his  experience  and  history?  Is  he  still  liv- 
ing? No  one  appears  to  know.  He  seems  to  stand  like  one  of 
Ossian's  heroes,  surrounded  with  clouds,  solitude  and  mystery.  In 
the  pages  of  Proudhon,  socialism  appears  as  an  avenging  fury, 
clothed  in  garments  dipped  in  the  sulphur  of  the  bottomless  pit  and 
armed  for  the  punishment  of  imbeciles,  liars,  scoundrels,  cowards 
and  tyrants;  in  those  of  Mr.  Beck,  she  presents  herself  as  a  con- 
structive and  beneficent  genius,  the  rays  of  her  heavenly  glory 
intercepted  by  a  double  veil  of  simplicity  and  modesty.  Mr.  Beck's 
style  has  none  of  the  infernal  fire  and  profanity  which  cause  the 
reader  of  the  "Contradictions  Economiques"  to  shudder;  you  seek  in 
vain  in  his  sentences  for  the  vigor  and  intense  self-consciousness  of 
Proudhon;  yet  the  thoughts  of  Proudhon  are  there.  One  would 
suppose  from  the  naturalness  of  his  manner,  that  he  was  altogether 
ignorant  of  the  novelty  and  true  magnitude  of  his  ideas. 

MB.  BECK'S  BANK. 

In  Mr.  Beck's  plan  for  a  Mutual  Bank — which  consists  in  a 
simple  generalization  of  the  system  of  credit  in  account  that  is  well 
described  in  the  following  extract  from  J.  Stuart  Mill's  "Political 
Economy" — there  is  one  fault  only;  but  that  fault  is  fatal;  it  is  that 
the  people  can  never  be  induced  to  adopt  the  complicated  method 
of  accounts  which  would  be  rendered  necessary : 

"A  mode  of  making  credit  answer  the  purposes  of  money,  by 
which,  when  carried  far  enough,  money  may  be  very  completely  su- 
perseded, consists  in  making  payments  by  checks.  The  custom  of 
keeping  the  spare  cash  reserved  for  immediate  use  or  against  con- 
tingent demands,  in  the  hands  of  a  banker  and  making  all  pay- 
ments, except  small  ones,  by  orders  on  bankers,  is  in  this  country 
spreading  to  a  continually  larger  portion  of  the  public.  If  the  per- 
son making  the  payment  and  the  person  receiving  it  kept  their 
money  with  the  same  banker,  the  payment  would  take  place  with- 
out any  intervention  of  money,  by  the  mere  transfer  of  its  amount 

""Money  and  Banking,  or  Their  Nature  and  Effects  Considered;  To- 
gether With  a  Plan  for  the  Universal  Diffusion  of  Their  Legitimate 
Benefits  Without  Their  Evils."  By  A  Citizen  of  Ohio.  Cincinnati:  Pub- 
lished by  William  Beck,  1839.;  16mo,  pp.  212. 


MUTUAL   BANKING.  29 

in  the  banker's  books  from  the  credit  of  the  payer  to  that  of  the  re- 
ceiver. If  all  persons  in  London  kept  their  cash  at  the  same  bank- 
er's and  made  all  their  payments  by  means  of  checks,  no  money 
would  be  required  or  used  for  any  transactions  beginning  and  ter- 
minating in  London.  This  ideal  limit  is  almost  attained  in  fact,  so 
far  as  regards  transactions  between  dealers.  It  is  chiefly  in  the  re- 
tail transactions  between  dealers  and  consumers,  and  in  the  pay- 
ment of  wages,  that  money  or  bank-notes  now  pass  and  then  only 
when  the  amounts  are  small.  In  London,  even  shop-keepers  of  any 
amount  of  capital,  or  extent  of  business,  have  generally  an  account 
with  a  banker;  which,  besides  the  safety  and  convenience  of  the 
practice,  is  to  their  advantage  in  another  respect,  by  giving  them 
an  understood  claim  to  have  their  bills  discounted  in  cases  where 
they  could  not  otherwise  expect  it.  As  for  the  merchants  and 
larger  dealers,  they  habitually  make  all  payments  in  the  course  of 
their  business,  by  checks.  They  do  not,  however,  all  deal  with  the 
same  banker;  and  when  A  gives  a  check  to  B,  B  usually  pays  it,  not 
into  the  same,  but  into  another  bank.  But  the  convenience  of  busi- 
ness has  given  birth  to  an  arrangement  which  makes  all  the  bank- 
ing-houses of  the  City  of  London,  for  certain  purposes,  virtually  one 
establishment.  A  banker  does  not  send  the  checks  which  are  paid 
into  his  banking-house  to  the  banks  on  which  they  are  drawn  and 
demand  money  for  them.  There  is  a  building  called  the  Clearing 
House,  to  which  every  city  banker  sends  each  afternoon,  all  the 
checks  on  other  bankers  which  he  has  received  during  the  day;  and 
they  are  there  exchanged  for  the  checks  on  him  which  have  come 
into  the  hands  of  other  bankers,  the  balances  only  being  paid  in 
money.  By  this  contrivance,  all  the  business  transactions  of  the 
City  of  London  during  that  day  amounting  often  to  millions  of 
pounds  and  a  vast  amount  besides  of  country  transactions,  repre- 
sented by  bills  which  country  bankers  have  drawn  upon  their  Lon- 
don correspondents,  all  liquidated  by  payments  not  exceeding,  on 
the  average,  £200,000."— (Vol.  ii.,  p.  47). 

"Money,"  says  Mr.  Beck,  "follows  in  the  track  of  claim.  Its 
progress  is  the  discharge  and  satisfaction  of  claim.  The  payment 
of  money  is  effectually  the  discharge  of  the  debtor;  but  it  is  not 
equally  effectual  in  satisfaction  of  the  creditor.  Though  it  releases 
the  debtor,  it  still  leaves  the  creditor  to  seek  the  real  object  of  his 
desire.  It  does  not  put  him  in  possession  of  it,  but  of  something 
which  enables  him  to  obtain  it.  He  must  exchange  this  money  by 
purchase  for  the  article  he  wants  before  that  object  is  attained.  In 
payment  of  debts,  it  passes  from  claimant  to  claimant,  discharging 
and  paying  claims  as  it  goes.  Money  follows  claim;  both  contin- 
ually revolving  through  all  classes  of  society  in  repeated  and  per- 
petual circles,  constantly  returning  to  their  several  stations,  drawn 
thither  by  operations  of  industry  or  of  business. 

"In  the  possession  of  money  every  one  has  his  turn.  It  comes 
to  him  in  the  shape  of  payment  for  his  sales  or  his  industry  and 


30  MUTUAL  BANKING. 

passes  from  him  in  the  shape  of  payment  or  expenditure,  again  to 
return  at  its  proper  time  and  on  a  proper  occasion  to  serve  the  same 
purposes  as  before. 

"Now,  I  contend  that  as  the  progress  of  money  lies  in  a  circular 
route,  a  certain  system  of  account  may  be  made  to  supply  its  place, 
where  its  track  and  extent  can,  in  that  circle,  be  included  and  dis- 
tinguished. 

"By  a  CIRCLE,  I  mean  that  range  of  society  which  includes  the 
whole  circulating  movement  of  money,  with  the  accompanying 
causes  and  effects  of  its  progress;  viz,  claims,  debts  and  payments; 
so  that,  if  we  wish  to  trace  its  path,  every  point  of  that  path  will  be 
contained  within  it.  Such  is  the  great  circle  of  society.  This  con- 
tains the  whole  body  of  debtors  and  the  whole  body  of  creditors.  It 
contains  all  the  debtors  to  the  creditors  and  all  the  creditors  to 
the  debtors.  All  would  be  included  in  the  jurisdiction  of  a  powar 
that  by  any  possibility  could  preside  over  the  whole.  Creditors  are 
sellers;  debtors  are  buyers.  But  no  man  continually  sells  without 
sometimes  buying,  nor  does  any  man  continually  buy  without  some- 
times selling.  The  creditor  who  receives  money  from  his  debtor, 
again  expends  this  money  upon  others,  who  thereby,  in  their  turns, 
become  creditors  and  receive  their  money  back  again.  All  these 
movements  are  within  the  range  of  the  one  circle  of  society.  Now, 
it  is  evident  that  if  an  account  were  kept  by  a  presiding  power,  the 
goods  which  any  person  receives,  being  of  equal  value,  would  pay 
for  those  which  he  had  previously  delivered;  would  replace  him  in 
his  original  assests  and  cancel  the  obligation  to  him  without  the 
aid  of  money.  Hence,  after  the  whole  process,  it  would  seem  that 
the  intermediate  passage  and  return  of  money  were  superfluous. 
If  the  dealings  are  not  directly  backward  and  forward — that  is, 
between  one  creditor  and  his  debtor  and  back  again  from  the  same 
debtor  to  the  same  creditor — the  effect  will  be  the  same;  for  as  this 
whole  circle  includes  every  creditor,  every  debtor  and  in  fact  every 
individual  in  that  society,  so  it  contains  every  account  to  which  the 
claims  of  any  creditor  would  apply,  and  every  account  to  which  the 
same  creditor  would  be  indebted.  The  agency  of  the  presiding 
power  would  render  it  pro  forma,  the  representative  to  every  cred- 
itor of  his  individual  debtor;  and  to  every  debtor,  the  representa- 
tive of  his  individual  creditor.  It  would  form  a  common  center  for 
all  claims  by  every  creditor  on  his  debtor.  It  would  form  the  chan- 
nel for  the  discharge  of  his  debts  and  the  receipt  of  his  claims.  It 
would  show  the  state  of  his  account  with  society,  and  the  balance, 
if  in  favor,  would  be  available  as  so  much  cash. 

"This  is  what  is  meant  by  a  CIRCLE.  Such  is  the  great  circle  of 
society,  the  only  one  which  is  complete  and  perfect,  and  such  are 
the  advantages  contained  in  it. 

"Hence  the  plan  I  propose  is  adapted  to  this  circle,  to  exhibit 
the  revolving  track  of  money  within  it;  to  contain  the  several 
points  of  its  progress;  and,  at  each  of  these  points,  to  perform  its 


MUTUAL  BANKING.  31 

duty  and  supply  its  place  by  the  revolution  of  debits  and  credits  in 
account,  instead  of  the  revolutions  of  the  actual  material  money." 
There  are  many  practical  processes  by  which  the  business- 
world  make  credit  perform  the  functions  of  money,  among  which 
may  be  especially  noticed — first,  that  by  credit  in  account;  and  sec- 
ond, that  by  bills  of  exchange.  Mr,  Beck  thought  out  a  Mutual 
Bank  by  generalizing  credit  in  account;  Proudhon,  by  generalizing 
the  bill  of  exchange. 

BILLS  OF  EXCHANGE. 

Let  it  be  supposed  that  there  are  ten  shoe-manufacturers  in  Lynn, 
who  sell  their  shoes  to  ten  shopkeepers  in  Boston ;  let  it  be  supposed, 
also,  that  there  are  ten  wholesale  grocers  in  Boston  who  furnish 
goods  to  ten  retail  grocers  in  Lynn.  If  the  value  of  the  shoes  equals 
the  value  of  the  groceries,  the  ten  retail  grocers  in  Lynn  would 
have  no  occasion  to  send  money  to  Boston  to  pay  their  indebted- 
ness to  the  wholesale  grocers;  neither  would  the  ten  shopkeepers 
in  Boston  have  occasion  to  send  money  to  Lynn  to  discharge  their 
debt  to  the  ten  shoe  manufacturers;  for  the  Lynn  retail  grocers 
might  pay  the  money  to  the  the  Lynn  shoe-maufacturers;  these 
shoe-manufacturers  writing  to  the  Boston  shopkeepers,  who  are 
their  debtors,  requesting  them  to  pay  the  Boston  wholesale  grocers, 
who  are  the  creditors  of  the  Lynn  retail  grocers.  It  is  very  possi- 
ble that  the  transactions  of  all  these  persons  with  each  other  might 
be  settled  in  this  way  without  the  transmission  of  any  money  either 
from  Boston  to  Lynn,  or  from  Lynn  to  Boston.  The  transfer  of 
debts  in  the  process  here  indicated  gives  rise  to  what  are  called,  in 
mercantile  language,  drafts,  or  bills  of  exchange;  though  regular 
bills  of  exchange  are  seldom  drawn  in  this  country,  except  against 
foreign  account.  A  bill  of  exchange  reads  generally  somewhat  as 
follows: 

"To  Mr.  E.  F. days  after  sight,  on  this  my  FIRST  bill  of  ex- 
change (second  and  third  of  the  same  date  and  tenor  not  paid)  pay  to 

A.  B.,  without  further  advice  from  me, dollars,  value  received, 

and  charge  the  same  to  account  of  your  obedient  servant,  C.  D." 

This  form  evidently  implies  that  the  bill  is  made  out  in  tripli- 
cates. The  bill  must  also,  of  course  be  dated.  A  DRAFT  is  a  bill  of 
exchange  drawn  up  with  the  omission  of  some  of  the  solemnity  and 
particularity  of  the  regular  bill. 

Bills  of  exchange  are  useful,  not  only  for  the  payment  of  debts 
at  distant  places  without  transportation  of  the  precious  metals, 
but  also  as  a  means  by  which  a  debt  due  from  one  person  may  be 
made  available  for  OBTAINING  CREDIT  from  another.  It  is  usual  in 
every  trade  to  give  a  certain  length  of  credit  for  goods  bought — 
ninety  days,  six  months,  eight  months,  or  a  longer  time,  as  may  be 
determined  by  the  convenience  of  the  parties,  or  by  the  custom  of 
the  particular  trade  and  place.  If  a  man  has  sold  goods  to  another 
on  six  month's  credit,  he  may  draw  a  bill  upon  his  debtor,  payable 
in  six  months,  get  his  bill  discounted  at  the  bank  and  thus  qualify 


32  MUTUAL  BANKING. 

himself  to  purchase  such  things  as  he  may  require  in  hi&  jusiness, 
without  waiting  for  the  six  months  to  expire.  But  bills  of  exchange 
do  more  than  this.  They  not  only  obviate,  upon  occasions,  the 
necessity  for  ready  money;  they  not  only  enable  a  man  to  com- 
mand ready  money  before  the  debts  due  to  him  arrive  at  maturity; 
they  often  actually  take  place  and  perform  the  functions  of  money 
itself.  J.  Stuart  Mill,  quoting  from  Mr,  Thornton,  says:  "Let  us 
imagine  a  farmer  in  the  country  to  discharge  a  debt  of  £10  to  his 
neighboring  grocer,  by  giving  him  a  bill  for  that  sum,  drawn  on  his 
corn-factor  in  London,  for  grain  sold  in  the  metropolis;  and  the 
grocer  to  transmit  the  bill — he  having  previously  indorsed  it — to  a 
neighboring  sugar-baker  in  discharge  of  a  like  debt;  and  the  sugar- 
baker  to  send  it  when  again  indorsed,  to  a  West  India  merchant  in 
an  outport;  and  the  West  India  merchant  to  deliver  it  to  his  coun- 
try banker,  who  also  indorses  it  and  sends  it  into  further  circula- 
lation.  The  bill  will  in  this  case  have  effected  five  payments,  ex- 
actly as  if  it  were  a  £10  note  payable  to  bearer  on  demand.  A  mul- 
titude of  bills  pass  between  trader  and  trader  in  the  country  in  the 
manner  which  has  been  described,  and  they  evidently  form  in  the 
strictest  sense,  a  part  of  the  circulating  medium  of  the  kingdom." 
Mr.  Mill  adds:  "Many  bills,  both  domestic  and  foreign,  are  at 
last  presented  for  payment  quite  covered  with  indorsements,  each 
of  which  represents  either  a  fresh  discounting,  or  a  pecuniary 
transaction  in  which  the  bill  has  performed  the  functions  of  money. 
Up  to  twenty  years  ago,  the  circulating  medium  of  Lancashire  for 
sums  above  £5  was  almost  entirely  composed  of  such  bills." 

In  our  explanation  of  the  system  of  banking  which  results  from 
a  generalization  of  the  bill  of  exchange,  we  will  let  the  master 
speak  for  himself: 

PBOUDHON'S  BANK. 

"We  must  destroy  the  royalty  of  gold;  we  must  republicanize 
specie,  by  making  every  product  of  labor  ready  money. 

"Let  no  one  be  frightened  beforehand.  I  by  no  means  propose 
to  reproduce  under  a  rejuvenated  form,  the  old  ideas  of  paper 
money,  money  of  paper,  assignats,  bank-bills,  etc.,  etc.;  for  all  these 
palliatives  have  been  known,  tried  and  rejected  long  ago.  These 
representations  on  paper,  by  which  men  have  believed  themselves 
able  to  replace  the  absent  god,  are,  all  of  them,  nothing  other  than 
a  homage  paid  to  metal— an  adoration  of  metal,  which  has  been 
always  present  to  men's  minds,  and  which  has  always  been  taken 
by  them  as  the  measure  or  evaluator  of  products. 

"Everybody  knows  what  a  bill  of  exchange  is.  The  creditor 
requests  the  debtor  to  pay  to  him,  or  to  his  order,  at  such  a  place, 
at  such  a  date,  such  a  sum  of  money. 

•'The  promissory  note  is  the  bill  of  exchange  inverted;  the 
debtor  promises  the  creditor  that  he  will  pay,  etc. 

"  'The  bill  of  exchange,'  says  the  statute,  'is  drawn  from  one 
place  on  another.  It  is  dated.  It  announces  the  sum  to  be  paid; 


MUTUAL  BANKING.  33 

the  time  and  place  where  the  payment  is  to  be  made;  the  value  to 
be  furnished  in  specie,  in  merchandise,  in  account,  or  in  other  form. 
It  is  to  the  order  of  a  third  person,  or  to  the  order  of  the  drawer 
himself.  If  it  is  by  1st,  2nd,  3rd,  4th,  «tc.,  it  must  be  so  stated.' 

"The  bill  of  exchange  supposes,  therefore,  exchange,  provision 
and  acceptance;  that  is  to  say,  a  value  created  and  delivered  by 
the  drawer;  the  existence,  in  the  hands  of  the  drawee,  of  the  funds 
destined  to  acquit  the  bill,  and  the  promise  on  the  part  of  the 
drawee,  to  acquit  it.  When  the  bill  of  exchange  is  clothed  with  all 
these  formalities;  when  it  represents  a  real  service  actually  ren- 
dered, or  merchandise  delivered;  when  the  drawer  and  drawee  are 
known  and  solvent;  when,  in  a  word,  it  is  clothed  with  all  the 
conditions  necessary  to  guarantee  the  accomplishment  of  the  obli- 
gation, the  bill  of  exchange  is  considered  GOOD;  it  circulates  in  the 
mercantile  world  like  bank-paper,  like  specie.  No  one  objects  to 
receiving  it  under  pretext  that  a  bill  of  exchange  is  nothing  but 
a  piece  of  paper.  Only — since,  at  the  end  of  its  circulation,  the  bill 
of  exchange,  before  being  destroyed,  must  be  exchanged  for  specie — 
it  pays  to  specie  a  sort  of  seigniorial  duty,  called  DISCOUNT. 

"That  which,  in  general,  renders  the  bill  of  exchange  insecure, 
is  precisely  this  promise  of  final  conversion  into  specie;  and  thus 
the  idea  of  metal,  like  a  corrupting  royalty,  infects  even  the  bill  of 
exchange  and  takes  from  it  its  certainty. 

"Now,  the  whole  problem  of  the  circulation  consists  in  general- 
izing the  bill  of  exchange;  that  is  to  say,  in  making  of  it  an  anony- 
mous title,  exchangeable  forever,  and  redeemable  at  sight,  but  only 
in  merchandise  and  services. 

"Or,  to  speak  a  language  more  comprehensible  to  financial 
adepts,  the  problem  of  the  circulation  consists  in  BASING  bank- 
paper,  not  upon  specie,  nor  bullion,  nor  immovable  property,  which 
can  never  produce  anything  but  a  miserable  oscillation  between 
usury  and  bankruptcy,  between  the  five-franc  piece  and  the  as- 
signat;  but  by  basing  it  upon  PRODUCTS. 

"I  conceive  this  generalization  of  the  bill  of  exchange  as  fol- 
lows: 

"A  hundred  thousand  manufacturers,  miners,  merchants,  com- 
missioners, public  carriers,  agriculturists,  etc.,  throughout  France, 
unite  with  each  other  in  obedience  to  the  summons  of  the  the  gov- 
ernment and  by  simple  authentic  declaration,  inserted  in  the  'Mon- 
iteur'  newspaper,  bind  themselves  respectively  and  reciprocally  to 
adhere  to  the  statutes  of  the  Bank  of  Exchange;  which  shall  be 
no  other  than  the  Bank  of  France  itself,  with  its  constitution  and 
attributes  modified  on  the  following  basis: 

"1st  The  Bank  of  France,  become  the  Bank  of  Exchange,  is 
an  institution  of  public  interest.  It  is  placed  under  the  guardian- 
ship of  the  state  and  is  directed  by  delegates  from  all  the  branches 
of  industry. 

"2nd.    Every  subscriber  shall  have  an  account  open  at  the 


34  MUTUAL   BANKING. 

Bank  of  Exchange  for  the  discount  of  his  business  paper;  and 
he  shall  be  served  to  the  same  extent  as  he  would  have  been  under 
the  conditions  of  discount  in  specie;  that  is,  in  the  known  measure 
of  his  faculties,  the  business  he  does,  the  positive  guarantees  he 
offers,  the  real  credit  he  might  reasonably  have  enjoyed  under  the 
old  system. 

"3rd.  The  discount  of  ordinary  commercial  paper,  whether  of 
drafts,  orders,  bills  of  exchange,  notes  on  demand,  will  be  made  in 
bills  of  the  Bank  of  Exchange,  of  denominations  of  25,  50, 100  and 
1,000  francs. 

"Specie  will  be  used  in  making  change  only. 

"4th.  The  rate  of  discount  will  be  tixed  at  per  cent,  com- 
mission included,  no  matter  how  long  the  paper  has  to  run.  With 
the  Bank  of  Exchange  all  business  will  be  finished  on  the  spot. 

"5th.  Every  subscriber  binds  himself  to  receive  in  all  payments, 
from  whomsoever  it  »ay  be  and  at  par,  the  paper  of  the  Bank  of 
Exchange. 

"6th.  Provisionally  and  by  way  of  transition,  gold  and  silver 
coin  will  be  received  in  exchange  for  the  paper  of  the  bank,  and  at 
their  nominal  value. 

"Is  this  a  paper  currency? 

"I  answer  unhesitatingly,  No!  It  is  neither  paper-money,  nor 
money  of  paper;  it  is  neither  government  checks,  nor  even  bank- 
bills;  it  is  not  of  the  nature  of  anything  that  has  been  hitherto  in- 
vented to  make  up  for  the  scarcity  of  the  specie.  It  is  the  bill  of 
exchange  generalized. 

"The  essence  of  the  bill  of  exchange  is  constituted — first,  by  its 
being  drawn  from  one  place  on  another;  second,  by  its  representing 
a  real  value  equal  to  the  sum  it  expresses;  third,  by  the  promise  or 
obligation  on  the  part  of  the  drawee  to  pay  it  when  it  falls  due. 

"In  three  words,  that  which  constitutes  the  bill  of  exchange  is 
exchange,  provision,  acceptance. 

"As  to  the  date  of  issue,  or  of  falling  due;  as  to  the  designation 
of  the  places,  persons,  object— these  are  particular  circumstances 
which  do  not  relate  to  the  essence  of  the  title,  but  which  serve 
merely  to  give  it  a  determinate  personal  and  local  actuality. 

"Now,  what  is  the  bank-paper  I  propose  to  create? 

"It  is  the  bill  of  exchange  stripped  of  the  circumstantial  quali- 
ties of  date,  place,  person,  object,  term  of  maturity,  and  reduced  to 
its  essential  qualities— exchange,  acceptance,  provision. 

"It  is,  to  explain  myself  still  more  clearly,  the  bill  of  exchange, 
payable  at  sight  and  forever,  drawn  from  every  place  in  France 
upon  every  other  place  In  France,  made  by  100,000  drawers,  guaran- 
teed by  100,000  indorsers,  accepted  by  the  100,000  subscribers  drawn 
upon;  having  provision  made  for  its  payment  in  the  100,000  work- 
shops, manufactories,  stores,  etc.,  of  the  same  100,000  subscribers. 

"I  say,  therefore,  that  such  a  title  unites  every  condition  of 
solidity  and  security  and  that  it  is  susceptible  of  no  depreciation. 


MUTUAL   BASKING.  35 

"It  is  eminently  solid;  since  on  one  side  it  represents  the  ordi- 
nary, local,  personal,  actual  paper  of  exchange,  determined  in  its 
object  and  representing  a  real  value,  a  service  rendered,  merchan- 
dise delivered,  or  whose  delivery  is  guaranteed  and  certain;  while 
on  the  other  side  it  is  guaranteed  by  the  contract,  in  solido,  of  100,- 
000  exchangers,  who,  by  their  mass,  their  independence,  and  at  the 
same  time  by  the  unity  and  connection  of  their  operations,  offer 
millions  of  millions  of  probability  of  payment  against  one  of  non- 
payment. Gold  is  a  thousand  times  less  sure. 

"In  fact,  if  in  the  ordinary  conditions  of  commerce,  we  may  say 
that  a  bill  of  exchange  made  by  a  known  merchant  offers  two 
chances  of  payment  against  one  of  non-payment,  the  same  bill  of 
exchange,  if  it  is  indorsed  by  another  known  merchant,  will  offer 
four  chances  of  payment  against  one.  If  it  is  indorsed  by  three, 
four  or  a  greater  number  of  merchants  equally  well  known,  there 
will  be  eight,  sixteen,  thirty-two,  etc.,  to  wager  against  one  that 
three,  four,  five,  etc.,  known  merchants  will  not  fail  at  the  same 
time,  since  the  favorable  chances  increase  in  geometrical  propor- 
tion with  the  number  of  indorsers.  What,  then,  ought  to  be  the 
certainty  of  a  bill  of  exchange  made  by  100,000  well-known  sub- 
scribers, who  are  all  of  them  interested  to  promote  its  circulation? 

"I  add  that  this  title  is  susceptible  of  no  depreciation.  The 
reason  for  this  is  found,  first,  in  the  perfect  solidity  of  a  mass  of 
100,000  signers.  But  there  exists  another  reason,  more  direct,  and  if 
possible,  more  reassuring;  it  is  that  the  issues  of  the  new  paper  can 
never  be  exaggerated  like  those  of  ordinary  bank-bills,  treasury 
notes,  paper  money,  assignats,  etc.,  for  the  issues  take  place  against 
good,  commercial  paper  only,  and  in  the  regular,  necessarily  lim- 
ited, measured  and  proportionate  process  of  discounting. 

"In  the  combination  I  propose,  the  paper  (at  once  sign  of  credit 
and  instrument  of  circulation)  grows  out  of  the  best  business- 
paper,  which  itself  represents  products  delivered,  and  by  no  means 
merchandise  unsold.  This  paper,  I  affirm,  can  never  be  refused  in 
payment,  since  it  is  subscribed  beforehand  by  the  mass  of  pro- 
ducers. 

"This  paper  offers  so  much  the  more  security  and  convenience, 
inasmuch  as  it  may  be  tried  on  a  small  scale,  and  with  as  few  per- 
sons as  you  see  fit,  and  that  without  the  least  violence,  without  the 
least  peril. 

"Suppose  the  Bank  of  Exchange  to  start  at  first  on  a  basis  of 
1,000  subscribers  instead  of  100,000;  the  amount  of  paper  it  would 
issue  would  be  in  proportion  to  the  business  of  these  1,000  subscrib- 
ers, and  negotiable  only  among  themselves.  Afterwards,  according 
as  other  persons  should  adhere  to  the  bank,  the  proportion  of  bills 
would  be  as  5,000,  10,000,  50,000,  etc.,  and  their  circulation  would 
grow  with  the  number  of  subscribers,  as  a  money  peculiar  to  them. 
Then,  when  the  whole  of  France  should  have  adhered  to  the  stat- 


36  MUTUAL   BANKING. 

utes  of  the  new  bank,  the  issue  of  paper  would  be  equal,  at  every 
instant,  to  the  the  totality  of  circulating  values. 

'•I  do  not  conceive  it  necessary  to  insist  longer.  Men  acquainted 
with  banking  will  understand  me  without  difficulty,  and  will  sup- 
ply from  their  own  minds  the  details  of  execution. 

"As  for  the  vulgar,  who  judge  of  all  things  by  the  material  aspect, 
nothing  for  them  is  so  similar  to  an  assignat  as  a  bill  of  the  Bank  of 
Exchange.  For  the  economist,  who  searches  the  idea  to  the  bot- 
tom, nothing  is  so  different.  They  are  two  titles,  which,  under  the 
same  matter,  the  same  form,  the  same  denomination,  are  diamet- 
rically opposed  to  each  other." — (Organization  du  Credit  de  la 
Circulation — Banque  d 'Exchange;  p.  23). 

KEMARKS. 

We  have  several  objections  to  Proudhon's  bank.  We  propose 
them  with  diffidence,  as  Proudhon  has  undoubtedly  prepared  an 
adequate  answer  to  them.  Nevertheless,  as  he  has  not  given  that 
answer  in  his  writings,  we  have  a  right  to  state  them.  They  are  as 
follows: 

1st.  We  ask  M.  Proudhon  how  he  would  punish  arbitrary  con- 
duct, partiality,  favoritism  and  self-sufficiency,  on  the  part  of  the 
officers  of  his  bank.  When  we  go  to  the  mutual  bank  to  borrow 
money,  we  desire  to  be  treated  politely  and  to  receive  fair  play. 

2nd.  We  ask  him  how  he  would  prevent  intriguing  members 
from  caballing  to  obtain  control  of  the  direction;  or  how  he  would 
prevent  such  intrigues  from  bringing  forth  evil  results. 

3rd.  We  ask  him  how  he  would  prevent  the  same  property, 
through  the  operation  of  successive  sales,  from  being  represented, 
at  the  same  time,  by  several  different  bills  of  exchange,  all  of 
which  are  liable  to  be  presented  for  discount.  For  example:  Sup- 
pose Peter  sells  John  $100  worth  of  pork  at  six  months  credit  and 
takes  a  bill  at  six  months  for  it;  and  that  John  sells  afterward  this 
same  pork  to  James  at  a  like  credit,  taking  a  like  bill;  what  shall 
prevent  both  Peter  and  John  from  presenting  their  bills  for  dis- 
count? Both  bills  are  REAL  bills,  resulting  from  sales  actually 
effected.  Neither  of  them  can  be  characterized  as  fictitious  paper, 
and  meanwhile,  only  one  represents  actual  property.  The  same 
barrel  of  pork,  by  being  sold  and  resold  at  credit  one  hundred  times 
will  give  rise  to  one  hundred  real  bills.  But  is  it  not  absurd  to 
say  that  the  bank  is  safe  in  discounting  all  this  paper,  for  the  rea- 
son that  it  is  entirely  composed  of  real  bills,  when  we  know  only 
one  of  them  represents  the  barrel  of  pork?  It  follows,  therefore, 
that  not  every  real  bill  is  adequately  guaranteed.  How,  then,  can 
Proudhon  be  certain  that  his  issues  of  bank-paper  "will  never  be 
exaggerated?" 

4th.  We  ask  him  how  he  would  cause  his  bank  to  operate  to 
the  decentralization  of  the  money  power. 

For  ourselves,  we  submit  (and  for  the  reason  that  it  is  necessary 
to  have  some  system  that  obviates  the  foregoing  objections)  that 


MUTUAL   BANKING.  37 

the  issues  of  mutual  money  ought— at  least,  here  in  New  England, 
the  theory  of  Proudhon  to  the  contrary  notwithstanding — to  be  re- 
lated to  a  basis  of  determinate  actual  property. 

Our  plan  for  a  Mutual  Bank  is  as  follows: 

1st.  Any  person,  by  pledging  actual  property  to  the  bank,  may 
become  a  member  of  the  Mutual  Banking  Company. 

2nd.  Any  member  may  borrow  the  paper  money  of  the  bank  on 
his  own  note  running  to  maturity  (without  indorsement)  to  an 
amount  not  to  exceed  one-half  of  the  value  of  the  property  by  him- 
self pledged. 

3rd.  Each  member  binds  himself  in  legal  form,  on  admission, 
to  receive  in  all  payments,  from  whomsoever  it  may  be  and  at  par, 
the  paper  of  the  Mutual  Bank. 

4th.  The  rate  of  interest  at  which  said  money  shall  be  loaned 
shall  be  determined  by,  and  shall  if  possible,  just  meet  and  cover, 
the  bare  expenses  of  the  institution.  As  for  interest  in  the  com- 
mon acceptation  of  the  word,  its  rate  shall  be  at  the  Mutual  Bank 
precisely  0. 

5th.  No  money  shall  be  loaned  to  any  persons  who  are  not 
members  of  the  company;  that  is,  no  money  shall  be  loaned,  ex- 
cept on  a  pledge  of  actual  property. 

6th.  Any  member,  by  paying  his  debts  to  the  bank,  may  have 
his  property  released  from  pledge,  and  be  himself  released  from  all 
obligations  to  the  bank,  or  to  the  holders  of  the  bank's  money,  as 
such. 

7th.  As  for  the  bank,  it  shall  never  redeem  any  of  its  notes  in 
specie;  nor  shall  it  ever  receive  specie  in  payments,  or  the  bills  of 
specie-paying  banks,  except  at  a  discount  of  one-half  of  one  per 
cent. 

Ships  and  houses  that  are  insured,  machinery,  in  short,  anything 
that  may  be  sold  under  the  hammer,  may  be  made  a  basis  for  the 
issue  of  mutual  money.  Mutual  Banking  opens  the  way  to  no 
monopoly;  for  it  simply  elevates  every  species  of  property  to  the 
rank  which  has  hitherto  been  exclusively  occupied  by  gold  and  sil- 
ver. It  may  be  well  (we  think  it  will  be  necessary)  to  begin  with 
real  estate;  we  do  not  say  it  would  be  well  to  end  there! 


CHAPTER  V. 

PETITION  FOB  A  GENERAL  MUTUAL  BANKING  LAW. 

To  the  Honorable  the  Senate  and  House  of  Representatives  of  the 
Commonwealth  of  Massachusetts. 

THIS  prayer  of  your  petitioners  humbly  showeth,  that  the 
farmers,  mechanics  and  other  actual  producers,  whose  names  are 
hereunto  subscribed,  believe  the  present  organization  of  the  cur- 
rency to  be  unjust  and  oppressive.  They,  therefore,  respectfully 
request  your  honorable  body  to  republicanize  gold,  silver  and  bank- 
bills,  by  the  enactment  of  a  GENERAL  MUTUAL  BANKING  LAW. 

A  law,  embracing  the  following  provisions,  would  be  eminently 
satisfactory  to  your  petitioners: 

1.  The  inhabitants  or  any  portion  of  the  inhabitants,  of  any 
town  or  city  in  the  Commonwealth  may  organize  themselves  into  a 
Mutual  Banking  Company. 

2.  Any  person  may  become  a  member  of  the  Mutual  Banking 
Company  of  any  particular  town,  by  pledging  REAL  ESTATE  situ- 
ated in  that  town,  or  in  its  immediate  neighborhood,  to  the  Mutual 
Bank  of  that  town. 

3.  The  Mutual  Bank  of  any  town  may  issue  PAPER-MONEY  to 
circulate  as  currency  among  persons  willing  to  employ  it  as  such. 

4.  Every  member  of  a  Mutual  Banking  Company  shall  bind 
himself,  and  be  bound,  in  due  legal  form,  on  admission,  to  receive 
in  payment  of  debts,  at  par,  and  from  all  persons,  the  bills  issued, 
and  to  be  issued,  by  the  particular  Mutual  Bank  to  which  he  may 
belong;  but  no  member  shall  be  obliged  to  receive,  or  have  in  pos- 
session, bills  of  said  Mutual  Bank  to  an  amount  exceeding  the 
whole  value  of  the  property  pledged  by  him. 

5.  Any  member  may  borrow  the  paper  money  of  the  bank  to 
which  he  belongs,  on  his  own  note  running  to  maturity  (without 
indorsement),  to  an  amount  not  to  exceed  one-half  of  the  value  of 
the  property  pledged  by  him. 

6.  The  rate  of  interest  at  which  said  money  shall  be  loaned  by 
the  bank,  shall  be  determined  by,  and  shall,  if  possible,  just  meet 
and  cover  the  bare  expenses  of  the  institution. 

7.  No  money  shall  be  loaned  by  the  bank  to  persons  who  do 
not  become  members  of  the  company  by  pledging  real  estate  to  the 
bank. 

8.  Any  member,  by  paying  his  debts  to  the  Mutual  Bank  to 
which  he  belongs,  may  have  his  property  released  from  pledge,  and 
be  himself  released  from  all  obligations  to  said  Mutual  Bank,  and 
to  holders  of  the  Mutual-Bank  money,  as  such. 


PETITION  FOR  A  MUTUAL  BANKING  LAW.     39 

9.  No  Mutual  Bank  shall  receive  other  than  Mutual-Bank 
paper-money  in  payment  of  debts  due  to  it,  except  at  a  discount  of 
one-half  of  one  per  cent. 

10.  The  Mutual  Banks  of  the  several  counties  in  the  Common- 
wealth shall  he  authorized  to  enter  into  such  arrangements  with 
each  other  as  shall  enable  them  to  receive  each  other's  bills  in  pay- 
ments of  debts;  so  that,  for  example,  a  Fitchburg  man  may  pay  his 
debts  to  the  Barre  Bank  in  Oxford  money,  or  in  such  other  Worces- 
ter-county money  as  may  suit  his  convenience. 


Let  A,  B,  C,  D  and  E  take  a  mortgage  upon  real  estate  owned 
by  F,  to  cover  a  value  of,  say,  $600;  in  consideration  of  which 
mortgage,  let  A,  B,  C,  D  and  E,  who  are  timber-dealers,  hardware 
merchants,  carpenters,  masons,  painters,  etc.,  furnish  planks, 
boards,  shingles,  nails,  hinges,  locks,  carpenters'  and  masons'  labor, 
etc.,  to  the  value  of  $600,  to  F,  who  is  building  a  house.  Let  the 
mortgage  have  six  months  to  run.  A,  B,  C,  D  and  E  are  perfectly  safe; 
for  either  F  pays  at  the  end  of  the  six  months,  and  then  the  whole 
transaction  is  closed;  or  F  does  not  pay,  and  then  they  sell  the  real 
estate  mortgaged  by  him,  which  is  worth  much  more  than  $600,  and 
pay  themselves,  thus  closing  the  transaction.  This  transaction, 
generalized,  gives  the  Mutual  Bank,  and  furnishes  a  currency 
based  upon  products  and  services,  entirely  independent  of  hard 
money,  or  paper  based  on  hard  money.  For  A,  B,  C,  D  and  E  may 
give  to  F,  instead  of  boards,  nails,  shingles,  etc.,  600  certificates  of 
his  mortgage,  said  certificates  being  receivable  by  them  for  services 
and  products,  each  one  in  lieu  of  a  silver  dollar;  each  certificate 
being,  therefore,  in  all  purchases  from  them,  equivalent  to  a  one- 
dollar  bill.  If  A,  B,  C,  D  and  E  agree  to  receive  these  certificates, 
each  one  in  lieu  of  a  silver  dollar,  for  the  redemption  of  the  mort- 
gage; if,  moreover,  they  agree  to  receive  them,  each  one  in  lieu  of  a 
silver  dollar,  from  whomsoever  it  may  be,  in  all  payments— then  A, 
B,  C,  D  and  E  are  a  banking  company  that  issues  mutual  money; 
and  as  they  never  issue  money  except  upon  a  mortgage  of  property  of 
double  the  value  of  the  money  issued,  their  transactions  are  always 
absolutely  safe,  and  their  money  is  always  absolutely  good. 

Any  community  that  embraces  members  of  all  trades  and  pro- 
fessions may  totally  abolish  the  use  of  hard  money,  and  of  paper 
based  on  hard  money,  substituting  mutual  money  in  its  stead;  and 
they  may  always  substitute  mutual  money  in  the  stead  of  hard 
money  and  bank  bills,  to  the  precise  extent  of  their  ability  to  live 
within  themselves  on  their  own  resources. 

THE  BATE  OF  INTEREST. 

As  interest-money  charged  by  Mutual  Banks  covers  nothing 
but  the  expenses  of  the  institutions,  such  banks  may  lend  money,  at 

A  KATE  OF  LESS  THAN  ONE  PEB  CENT  PEB  ANNUM,  to    persons   offer  - 

ng  good  security. 


40  MUTUAL  BANKING. 

ADVANTAGES  OF  MUTUAL  BANKING. 

It  may  be  asked  "What  advantage  does  mutual  banking  hold 
out  to  individuals  who  have  no  real  estate  to  offer  in  pledge?"  We 
answer  this  question  by  another:  What  advantage  do  the  existing 
banks  hold  out  to  individuals  who  desire  to  borrow,  but  are  unable 
to  offer  adequate  security?  If  we  knew  of  a  plan  whereby,  through 
an  act  of  the  legislature,  every  member  of  the  community  might  be 
made  rich,  we  would  destroy  this  petition,  and  draw  up  another 
embodying  that  plan.  Meanwhile,  we  affirm  that  no  system  was 
ever  devised  so  beneficial  to  the  poor  as  the  system  of  mutual  bank- 
ing; for  if  a  man  having  nothing  to  offer  in  pledge,  has  a  friend  who 
is  a  farmer,  or  other  holder  of  real  estate,  and  that  friend  is  willing 
to  furnish  security  for  him,  he  can  borrow  money  at  the  mutual 
bank  at  a  rate  of  1  per  cent  interest  a  year;  whereas,  if  he  should 
borrow  at  the  existing  banks,  he  would  be  obliged  to  pay  6  per  cent. 
Again,  as  mutual  banking  will  make  money  exceedingly  plenty,  it 
will  cause  a  rise  in  the  rate  of  wages,  thus  benefiting  the  man  who 
has  no  property  but  his  bodily  strength;  and  it  will  not  cause  a 
proportionate  increase  in  the  price  of  the  necessaries  of  life:  for  the 
price  of  provisions,  etc.,  depends  on  supply  and  demand;  and 
mutual  banking  operates,  not  directly  on  supply  and  demand,  but 
to  the  diminution  of  the  rate  of  interest  on  the  medium  of  exchange. 
Mutual  banking  will  indeed  cause  a  certain  rise  in  the  price  of  com- 
modities by  creating  a  new  demand;  for,  with  mutual  money,  the 
poorer  classes  will  be  able  to  purchase  articles  which,  under  the 
present  currency,  they  never  dream  of  buying. 

But  certain  mechanics  and  farmers  say,  "We  borrow  no  money, 
and  therefore  pay  no  interest.  How,  then,  does  this  thing  concern 
us?"  Hearken,  my  friends!  let  us  reason  together.  I  have  an  im- 
pression on  my  mind  that  it  is  precisely  the  class  who  have  no  deal- 
ings with  the  banks,  and  derive  no  advantages  from  them,  that 
ultimately  pay  all  the  interest  money  that  is  paid.  When  a  manu- 
facturer borrows  money  to  carry  on  his  business,  he  counts  the  in- 
terest he  pays  as  a  part  of  his  expenses,  and  therefore  adds  the  amount 
of  interest  to  the  price  of  his  goods.  The  consumer  who  buys  the 
goods  pays  the  interest  when  he  pays  for  the  goods;  and  who  is  the 
consumer,  if  not  the  mechanic  and  the  farmer?  If  a  manufacturer 
could  borrow  money  at  1  percent,  he  could  afford  to  undersell  all  his 
competitors,  to  the  manifest  advantage  of  the  farmer  and  mechanic. 
The  manufacturer  would  neither  gain  nor  lose;  the  farmer  and 
mechanic,  who  have  no  dealings  with  the  bank,  would  gain  the 
whole  difference;  and  the  bank — which,  were  it  not  for  the  compe- 
tition of  the  Mutual  Bank,  would  have  loaned  the  money  at  6  per 
cent  interest— would  lose  the  whole  difference.  It  is  the  indirect 
relation  of  the  bank  to  the  farmer  and  mechanic,  and  not  its  direct 
relation  to  the  manufacturer  and  merchant,  that  enables  it  to  make 
money.  When  foreign  competition  prevents  the  manufacturer  from 
keeping  up  the  price  of  his  goods,  the  farmer  and  mechanic,  who 


PETITION  FOR  A  MUTUAL  BANKING  LAW.     41 

are  consumers,  do  not  pay  the  interest-money:  but  still  the  interest 
is  paid  by  the  class  that  derive  no  benefit  from  the  banks;  for,  in 
this  case,  the  manufacturer  will  save  himself  from  loss  by  cutting 
down  the  wages  of  his  workmen  who  are  producers.  Wages  fluc- 
tuate, rising  and  falling  (other  things  being  equal)  as  the  rate  of 
interest  falls  or  rises.  If  the  farmer,  mechanic  and  operative  are 
not  interested  in  the  matter  of  banking,  we  know  not  who  is. 

MUTUAL,    MONEY    IS    GENEKALLY    COMPETENT    TO    FORCE    ITS    OWN 
WAY  INTO  GENERAL  CIRCULATION. 

Let  us  suppose  the  Mutual  Bank  to  be  at  first  established  in  a 
single  town,  and  its  circulation  to  be  confined  within  the  limits  of 
that  town.  The  trader  who  sells  the  produce  of  that  town  in  the 
city  and  buys  there  such  commodities — tea,  coffee,  sugar,  calico, 
etc.— as  are  required  for  the  consumption  of  his  neighbors,  sells  and 
buys  on  credit.  He  does  not  pay  the  farmer  cash  for  his  produce; 
he  does  not  sell  that  produce  for  cash  in  the  city;  neither  does  he 
buy  his  groceries,  etc.,  for  cash  from  the  city  merchant:  but  he 
buys  of  the  farmer  at,  say,  eight  months'  credit;  and  he  sells  to 
the  city  merchant  at,  say,  six  months'  credit.  He  finds,  more- 
over, as  a  general  thing,  that  the  exports  of  the  town  which  pass 
through  his  hands  very  nearly  balance  the  imports  that  he  brings 
into  the  town  for  sale;  so  that,  in  reality,  the  exports — butter, 
cheese,  pork,  beef,  eggs,  etc.— pay  for  the  imports— coffee,  sugar, 
etc.  And  how,  indeed,  could  it  be  otherwise?  It  is  not  to  be  sup- 
posed that  the  town  has  silver  mines  and  a  mint;  and,  if  the  people 
pay  for  their  imports  in  money,  it  will  be  because  they  have  be- 
come enabled  so  to  do  by  selling  their  produce  for  money.  It  fol- 
lows, therefore,  that  the  people  in  a  country  town  do  not  make  the 
money,  whereby  they  pay  for  store-goods,  off  each  other,  but  that 
they  make  it  by  selling  their  produce  out  of  the  town.  There  are, 
therefore,  two  kinds  of  trading  going  on  at  the  same  time  in  the 
town— one  trade  of  the  inhabitants  with  each  other;  and  another 
of  the  inhabitants,  through  the  store,  with  individuals  living  out  of 
town.  And  these  two  kinds  of  trade  are  perfectly  distinct  from 
each  other.  The  mutual  money  would  serve  all  the  purposes  of  the 
internal  trade;  leaving  the  hard  money,  and  paper  based  on  hard 
money,  to  serve  exclusively  for  the  purposes  of  trade  that  reaches 
out  of  the  town.  The  mutual  money  will  not  prevent  a  single  dol- 
lar of  hard  money,  or  paper  based  on  hard  money,  from  coming 
into  the  town;  for  such  hard  money  comes  into  the  town,  not  in 
consequence  of  exchanges  made  between  the  inhabitants  them- 
selves, but  in  consequence  of  produce  sold  abroad.*  So  long  as 
produce  is  sold  out  of  the  town,  so  long  will  the  inhabitants  be  able 
to  buy  commodities  that  are  produced  out  of  the  town;  and  they 

*These  remarks  may  be  generalized,  and  applied  to  the  commerce 
which  is  carried  on  between  nations. 


42  MUTUAL  BANKING. 

will  be  able  to  make  purchases  to  the  precise  extent  that  they  are 
able  to  make  sales.  The  mutual  money  will  therefore  prove  to 
them  an  unmixed  benefit;  it  will  be  entirely  independent  of  the  old 
money,  and  will  open  to  them  a  new  trade  entirely  independent  of 
the  old  trade.  So  far  as  it  can  be  made  available,  it  will  unques- 
tionably prove  itself  to  be  a  Rood  thing;  and,  where  it  cannot  be 
made  available,  the  inhabitants  will  only  be  deprived  of  a  benefit 
that  they  could  not  have  enjoyed — mutual  money  or  no  mutual 
money.  Besides,  the  comparative  cost  of  the  mutual  money  is  al- 
most nothing;  for  it  can  be  issued  to  any  amount  on  good  security, 
at  the  mere  cost  of  printing,  and  the  expense  of  looking  after  the 
safety  of  the  mortgages.  If  the  mutual  money  should  happen,  at 
any  particular  time,  not  to  be  issued  to  any  great  extent,  it  would 
not  be  as  though  an  immense  mass  of  value  was  remaining  idle;  for 
interest  on  the  mutual  money  is  precisely  0.  The  mutual  money  is 
not  itself  actual  value,  but  a  mere  medium  for  the  exchange  of  act- 
ual values— a  mere  medium  for  the  facilitation  of  barter. 

We  have  remarked,  that  when  the  trader,  who  does  the  out-of- 
town  business  of  the  inhabitants,  buys  coffee,  sugar,  etc.,  he  does 
not  pay  cash  for  them,  but  buys  them  at,  say,  six  months'  credit. 
Now,  the  existing  system  of  credit  causes,  by  its  very  nature,  peri- 
odical crises  in  commercial  affairs.  When  one  of  these  crises  oc- 
curs, the  trader  will  say  to  the  city  merchant,  "I  owe  you  so  much 
for  groceries;  but  i  have  no  money,  for  times  are  hard:  I  will  give 
you,  however,  my  note  for  the  debt.  Now,  we  leave  it  to  the  reader, 
would  not  the  city  merchant  prefer  to  take  the  mutual  money  of 
the  town  to  which  the  trader  belongs,  money  that  holds  real  estate 
and  produce  in  that  town,  rather  than  the  private  note  of  a  trader 
who  may  fail  within  a  week? 

If,  under  the  existing  system,  all  transactions  were  settled  on 
the  spot  in  cash,  things  might  be  different;  but  as  almost  all  trans- 
actions are  conducted  on  the  credit  system,  and  as  the  credit  system 
necessarily  involves  periodical  commercial  crises,  the  mutual 
money  will  find  very  little  difficulty  in  ultimately  forcing  itself  into 
general  circulation.  The  Mutual  Bank  is  like  the  stone  cut  from 
the  mountain  without  hands,  for  let  it  be  once  established  in  a  sin- 
gle village,  no  matter  how  obscure,  and  it  will  grow  till  it  covers 
the  whole  earth.  Nevertheless,  it  would  be  better  to  obviate  all 
difficulty  by  starting  the  Mutual  Bank  on  a  sufficiently  extensive 
scale  at  the  very  beginning. 

THE  MEASURE  OP  VALUE. 

The  bill  of  a  Mutual  Bank  is  not  a  standard  of  value,  since  it 
is  itself  measured  and  determined  in  value  by  the  silver  dollar.  If 
the  dollar  rises  in  value,  the  bill  of  the  Mutual  Bank  rises  also, 
since  it  is  receivable  in  lieu  of  a  silver  dollar.  The  bills  of  a  Mutual 
Bank  are  not  standards  of  value,  but  mere  instruments  of  exchange; 
and  as  the  value  of  mutual  money  is  determined,  not  by  the  demand 
and  supply  of  mutual  money,  but  by  the  demand  and  supply  of  the 


PETITION  FOR  A  MUTUAL  BANKING  LAW.     43 

precious  metals,  the  Mutual  Bank  may  issue  bills  to  any  extent,  and 
those  bills  will  not  be  liable  to  any  depreciation  from  excess  of  supply. 
And,  for  like  reasons,  mutual  money  will  not  be  liable  to  rise  in 
value  if  it  happens  at  any  time  to  be  scarce  in  the  market.  The 
issues  of  mutual  money  are  therefore  susceptible  of  any  contrac- 
tion or  expansion  which  may  be  necessary  to  meet  the  wants  of  the 
community,  and  such  contraction  or  expansion  cannot  by  any  pos- 
sibility be  attended  with  any  evil  consequence  whatever:  for  the 
silver  dollar,  which  is  the  standard  of  value,  will  remain  through- 
out at  the  natural  valuation  determined  for  it  by  the  general  de- 
mand and  supply  of  gold  and  silver  throughout  the  whole  world. 

The  bills  of  Mutual  Banks  act  merely  as  a  medium  of  ex- 
change: they  do  not  and  cannot  pretend  to  be  measures  or  stand- 
ards of  value.  The  medium  of  exchange  is  one  thing;  the 
measure  of  value  is  another;  and  the  standard  of  value  still  an- 
other. The  dollar  is  the  measure  of  value.  Silver  and  gold,  at  a 
certain  degree  of  fineness,  are  the  standard  of  value.  The  bill  of  a 
Mutual  Bank  is  a  bill  of  exchange,  drawn  by  all  the  members  of  the 
mutual  banking  company  upon  themselves,  indorsed  and  accepted 
by  themselves,  payable  at  sight,  but  only  in  services  and  products. 
The  members  of  the  company  bind  themselves  to  receive  their  own 
money  at  par;  that  is,  in  lieu  of  as  many  silver  dollars  as  are  de- 
noted by  the  denomination  on  the  face  of  the  bill.  Services  and 
products  are  to  be  estimated  in  dollars,  and  exchanged  for  each 
other  without  the  intervention  of  specie.* 

Mutual  money,  which  neither  is  nor  can  be  merchandise,  es- 
capes the  law  of  supply  and  demand,  which  is  applicable  to  mer- 
chandise only. 

THE  KEGULATOB  OF  VALUE. 

The  utility  of  an  article  is  one  thing;  its  exchangeable  value 
is  another;  and  the  cost  of  its  production  is  still  another.  But  the 
amount  of  labor  expended  in  production,  though  not  the  measure, 
is,  in  the  long  run,  the  regulator  of  value;  for  every  new  invention 
which  abridges  labor,  and  enables  an  individual  or  company  to 
offer  an  increased  supply  of  valuable  articles  in  the  market  brings 
with  it  an  increase  of  competition.  For,  supposing  that  one  dollar 
constitutes  a  fair  day's  wages,  and  that  one  man  by  a  certain  pro- 
cess can  produce  an  article  valued  in  the  market  at  one 

*"I  now  undertake  to  affirm  positively,  and  without  the  least  fear 
that  I  can  be  answered,  what  heretofore  I  have  but  suggested— that  a 
paper  issued  by  the  government,  with  the  simple  promise  to  receive  it  in 
all  its  dues,  leaving  its  creditors  to  take  it  or  gold  and  silver  at  their 
option,  would,  to  the  extent  that  it  would  circulate,  form  a  perfect 
paper-circulation,  which  could  not  be  abused  by  the  government;  that 
it  would  be  as  steady  and  uniform  in  value  as  the  metals  themselves; 
and  that,  if  by  possibility,  it  should  depreciate,  the  loss  would  fall,  not 
on  the  people,  but  on  the  government  itself,"  etc.— J.  C.  CALHOUN: 
Speech  in  reply  to  Mr.  Webster  on  the  Sub-Treasury  Bill,  March  22, 1838. 


44  MUTUAL  BANKING. 

dollar  in  half  a  day's  labor,  other  men  will  take  ad- 
vantage of  the  same  process,  and  undersell  the  first  man, 
in  order  to  get  possession  of  the  market.  Thus,  by  the  effect 
of  competition,  the  price  of  the  article  will  probably  be  ultimately 
reduced  to  fifty  cents.  Labor  is  the  true  regulator  of  value;  for 
every  laboring  man  who  comes  into  competition  with  others  in- 
creases the  supply  of  the  products  of  labor,  and  thus  diminishes 
their  value;  while  at  the  same  time,  and  because  he  is  a  living 
man,  he  increases  the  demand  for  those  products  to  precisely  the 
same  extent,  and  thus  restores  the  balance:  for  the  laborer  must  be 
housed,  clothed  and  subsisted  by  the  products  of  his  labor.  Thus 
the  addition  of  a  laboring  man,  or  of  any  number  of  laboring  men, 
to  the  mass  of  producers,  ought  to  have  no  effect  either  upon  the 
price  of  labor,  or  upon  that  of  commodities;  since,  if  the  laborer  by 
his  presence  increases  the  productive  power,  he  at  the  same  time 
increases  the  demand  for  consumption.  We  know  that  things  do 
not  always  fall  out  thus  in  practice;  but  the  irregularity  is  ex- 
plained by  the  fact  that  the  laborer,  who  ought  himself  to  have  the 
produce  of  his  labor,  or  its  equivalent  in  exchange,  has,  by  the 
present  false  organization  of  credit,  his  wages  abstracted  from  him. 
Want  and  over-production  arise  sometimes  from  mistakes  in  the  di- 
rection of  labor,  but  generally  from  that  false  organization  of 
credit  which  now  obtains  throughout  the  civilized  world.  There  is 
a  market  price  of  commodities,  depending  on  supply  and  demand, 
and  a  natural  price,  depending  on  the  cost  of  production;  and  the 
market  price  is  in  a  state  of  continual  oscillation,  being  sometimes 
above,  and  sometimes  below,  the  natural  price:  but  in  the  long  run, 
the  average  of  a  series  of  years  being  taken,  it  coincides  with  it.  It 
is  probable  that,  under  a  true  organization  of  credit,  the  natural 
price  and  market  price  would  coincide  at  every  moment.*  Under 
the  present  system,  there  are  no  articles  whose  market  and  natural 
prices  coincide  so  nearly  and  so  constantly  as  those  of  the  precious 
metals;  and  it  is  for  this  reason  that  they  have  been  adopted  by  the 
various  nations  as  standards  of  value. 

When  Adam  Smith  and  Malthust  say  that  labor  is  a  measure  of 

*The  theory  that  the  laborer  should  receive  sufficient  wages  to  buy 
back  his  product,  and  thus  prevent  over-production,  was  discovered  al- 
most simultaneously  by  a  number  of  writers  about  fifty  years  ago.  The 
value  of  this  discovery  to  economics  is  as  great  as  Newton's  was  to 
physics,  or  Darwin's  to  biology.— EDITOR. 

tMalthns  says  (we  quote  the  substance,  and  very  possibly  the  exact 
words,  though  we  have  not  the  book  by  us):  "If  a  man  is  born  into  a 
world  already  occupied,  and  his  family  is  not  able  to  support  him,  or  if 
society  has  no  demand  for  his  labor,  that  man  has  no  right  to  claim  any 
nourishment  whatever;  he  is  really  one  too  many  on  the  earth.  At  the 
great  banquet  of  nature  there  is  no  plate  laid  for  him.  Nature  com- 
mands him  to  take  himself  away;  and  she  will  by  no  means  delay  in 
putting  her  own  order  into  execution." 


PETITION  FOE  A  MUTUAL  BANKING  LAW.     45 

value,  they  speak,  not  of  the  labor  which  an  article  cost,  or  ought  to 
have  cost,  in  its  production,  but  of  the  quantity  of  labor  which  the 
article  may  purchase  or  command.  It  is  very  well,  for  those  who 
mistake  the  philosophy  of  speculation  on  human  misfortune  and 
necessities  for  social  science,  to  assume  for  measure  of  value  the 
amount  of  labor  which  different  commodities  can  command.  Con- 
sidered from  this  point  of  view,  the  price  of  commodities  is  regu- 
lated, not  in  the  labor  expended  in  their  production,  but  by  the 
distress  and  want  of  the  laboring  class.  There  is  no  device  of  the 
political  economists  so  infernal  as  the  one  which  ranks  labor  as  a 
commodity,  varying  in  value  according  to  supply  and  demand. 
Neither  is  there  any  device  so  unphilosophical;  since  the  ratio  of 
the  supply  of  labor  to  the  demand  for  it  is  unvarying:  for  every 
producer  is  also  a  consumer,  and  rightfully,  to  the  precise  extent  of 
the  amount  of  his  products;  the  laborer  who  saves  up  his  wages 
being,  so  far  as  society  is  concerned,  and  in  the  long  run,  a  consum- 
er of  those  wages.  The  supply  and  demand  for  labor  is  virtually 
unvarying;  and  its  price  ought,  therefore,  to  be  constant,  Labor 
is  said  to  be  value,  not  because  it  is  itself  merchandise,  but  because 
of  the  values  it  contains,  as  it  were,  in  solution,  or,  to  use  the  cor- 
rect metaphysical  term,  in  potentia.  The  value  of  labor  is  a 
figurative  expression,  and  a  fiction,  like  the  productiveness  of  cap- 
ital. Labor,  like  liberty,  love,  ambition,  genius,  is  something 
vague  and  indeterminate  in  its  nature,  and  is  rendered  definite  by 
its  object  only;  misdirected  labor  produces  no  value.  Labor  is  said 
to  be  valuable,  not  because  it  can  itself  be  valued,  but  because  the 
products  of  labor  may  be  truly  valuable.  When  we  say  "John's 
labor  is  worth  a  dollar  a  day,"  it  is  as  though  we  said,  "The  daily 
product  of  John's  labor  is  worth  a  dollar."  To  speak  of  labor  as 
merchandise  is  treason;  for  such  speech  denies  the  true  dignity  of 
man,  who  is  the  king  of  the  earth.  Where  labor  is  merchandise  in 
fact  (not  by  a  mere  inaccuracy  of  language)  there  man  is  merchan- 
dise also,  whether  it  be  in  England  or  South  Carolina. 

THE  WAY  IK  WHICH  THE  AFFAIRS  OF  THE  MUTUAL  BANK  MAY  BE 
CLOSED. 

When  the  company  votes  to  issue  no  more  money,  the  bills  it 
has  already  issued  will  be  returned  upon  it;  for,  since  the  bills 
were  issued  in  discounting  notes  running  to  maturity,  the  debtors 
of  the  bank,  as  their  notes  mature,  will  pay  in  the  bills  they  have 
received.  When  the  debtors  have  paid  their  debts  to  the  bank, 
then  the  bills  are  all  in,  every  debtor  has  discharged  his  mortgage, 
and  the  affairs  of  the  bank  are  closed.  If-  any  debtor  fails  to  pay, 
the  bank  sells  the  property  mortgaged,  and  pays  itself.  The  bank 
lends  at  a  rate  of  interest  that  covers  its  bare  expenses:  it  makes, 
therefore,  no  profits,  and,  consequently,  aan  declare  no  dividends. 
It  is  by  its  nature  incapable  of  owing  anything:  it  has,  therefore, 
no  debts  to  settle.  When  the  bank's  debtors  have  paid  their  debts 


46  MUTUAL  BANKING. 

to  the  bank,  then  nobody  owes  anything  to  the  bank,  and  the  bank 
owes  nothing  to  anybody. 

In  case  some  of  the  debtors  of  the  bank  redeem  their  notes,  not 
in  bills  of  the  Mutual  Bank,  but  in  bills  of  specie-paying  banks, 
then  those  bills  of  specie-paying  banks  will  be  at  once  presented  for 
redemption  at  the  institutions  that  issued  them;  and  an  amount  of 
specie  will  come  into  the  hands  of  the  Mutual  Bank,  precisely 
equal  to  the  amount  of  its  own  bills  still  in  circulation;  for  since 
the  Mutual  Bank  never  issues  money,  except  in  discounting  notes 
running  to  maturity,  the  notes  of  the  debtors  to  the  bank  precisely 
cover  the  amount  of  the  bank's  money  in  circulation.  When  this 
specie  conies  into  the  hands  of  the  bank,  it  deposits  it  at  once  in 
some  other  institution;  which  institution  assumes  the  responsibility 
of  redeeming  at  sight  such  of  the  bills  of  the  closed  bank  as  may  be 
at  any  time  thereafter  presented  for  redemption.  And  such  institu- 
tion will  gladly  assume  this  responsibility,  since  it  is  probable  that 
many  of  the  bills  will  be  lost  or  destroyed,  and  therefore  never  pre- 
sented for  redemption;  and  such  loss  or  destruction  will  be  a  clear 
gain  to  the  institution  assuming  the  responsibility,  since  it  has  spe- 
cie turned  over  to  it  for  the  redemption  of  every  one  of  the  bills 
that  remains  out. 

Finally:  let  us  conceive,  for  a  moment,  of  the  manifold  imper- 
fections of  the  existing  system  of  banking.  In  Massachusetts,  the 
banks  had  out,  in  the  year  1849,  nine  and  one-half  dollars  of  paper* 
for  every  one  dollar  of  specie  in  their  vaults  wherewith  to  redeem 
them.  Can  any  thing  be  more  absurd  than  the  solemn  promise  made 
by  the  banks  to  redeem  nine  and  one-half  paper-dollars  with  one 
dollar  in  specie?  They  may  get  along  very  well  with  this  promise 
in  a  time  of  profound  calm;  but  what  would  they  do  on  occasions  of 
panic?t 

The  paper  issued  under  the  existing  system  is  an  article  of  mer- 
chandise, varying  in  price  with  the  variations  of  supply  and  de- 
mand: it  is,  therefore,  unfit  to  serve  as  a  medium  of  exchange. 

The  banks  depend  on  the  merchants;  so  that,  when  the  mer- 
chant is  poor,  it  falls  out  that  the  bank  is  always  still  poorer.  Of 
what  use  is  the  bank,  if  it  calls  in  its  issues  in  hard  times— the  very 
occasions  when  increased  issues  are  demanded  by  the  wants  of  the 
community? 

The  existing  bank  reproduces  the  aristocratic  organizations;  it 
has  its  Spartan  element  of  privileged  stockholders,  its  Laconian 
element  of  obsequious  speculators,  and,  on  the  outside,  a  multitude 
of  Helots  who  are  excluded  from  its  advantages.  Answer  us,  read- 

*Counting,  of  course,  the  certificates  of  deposit  which  are  convertible 
Into  specie  on  demand. 

^Notwithstanding  the  fact  that  this  work  was  written  in  criticism  of 
the  banking  system  in  vogue  in  1850,  most  people  persist  in  calling  it  a 
"revival  of  the  old  wild-cat  banks  that  existed  before  the  war."— EDITOR 


PETITION  FOE  A  MUTUAL  BANKING  LAW.     47 

er:  If  we  are  able,  at  this  time,  to  bring  forward  the  existing  bank- 
ing system  as  a  new  thing,  and  should  recommend  its  adoption,  would 
you  not  laugh  in  our  face,  and  characterize  our  proposition  as  ridic- 
ulous? Yet  the  existing  system  has  an  actual  and  practical  being, 
in  spite  of  all  its  imperfections:  nay,  more,  it  is  the  ruling  element 
of  the  present  civilization  of  the  Christian  world;  it  has  substituted 
itself,  or  is  now  substituting  itself,  in  the  place  of  monarchies  and 
nobilities.  Who  is  the  noble  of  the  present  day,  if  not  the  man  who 
lends  money  at  interest?  Who  is  the  emperor,  if  not  Pereire  or 
Baron  Rothschild?  Now,  if  the  present  system  of  banking  is  capa- 
ble of  actual  existence,  how  much  more  capable  of  actual  existence 
is  the  system  of  mutual  banking!  Mutual  banking  combines  all 
the  good  elements  of  the  method  now  in  operation,  and  is  capable 
of  securing  a  thousand  benefits  which  the  present  method  cannot 
compass,  and  is,  moreover,  free  from  all  its  disadvantages! 


CHAPTER  VI. 

THE    PROVINCIAL  LAND  BANK.* 

"!N  THE  year  1714,"  says  Governor  Hutchinson,  in  his  "His- 
tory of  Massachusetts,"  a  certain  "party  had  projected  a  private 
bank;  or,  rather,  had  taken  up  a  project  published  in  London  in 
the  year  1684;  but  this  not  being  generally  known  in  America,  a 
merchant  of  Boston  was  the  reputed  father  of  it.  There  was  noth- 
ing more  in  it  than  issuing  bills  of  credit,  which  all  the  members  of 
the  company  promised  to  receive  as  money,  but  at  no  certain  value 
compared  with  silver  and  gold;  and  real  estate  to  a  sufficient  value 
were  to  be  bound  as  a  security  that  the  company  should  perform 
their  engagements.  They  were  soliciting  the  sanction  of  the  Gen- 
eral Court,  and  an  act  of  government  to  incorporate  them.  This 
party  generally  consisted  of  persons  in  difficult  or  involved  circum- 
stances in  trade;  or  such  as  were  possessed  of  real  estates;  but  had 
little  or  no  ready  money  at  command;  or  men  of  no  substance  at  all; 
and  we  may  well  enough  suppose  the  party  to  be  very  numerous. 
Some,  no  doubt,  joined  them  from  mistaken  principles,  and  an  ap- 
prehension that  it  was  a  scheme  beneficial  to  the  public;  and  some 
for  party's  sake  and  public  applause. 

"Three  of  the  representatives  from  Boston — Mr.  Cooke;  Mr. 
Noyes,  a  gentlemen  in  great  esteem  with  the  inhabitants  in  gen- 
eral; and  Mr.  Payne — were  the  supporters  of  the  party.  Mr. 
Hutchinson,  the  other  (an  attempt  to  leave  him  out  of  the  House 
not  succeeding),  was  sent  from  the  House  to  the  Council,  where  his 
opposition  would  be  of  less  consequence.  The  governor  was  no 
favorer  of  the  scheme;  but  the  lieutenant-governor — a  gentleman 
of  no  great  fortune,  and  whose  stipend  from  the  government  was 
trifling— engaged  in  the  cause  with  great  zeal. 

"A  third  party,  though  very  opposite  to  the  private  bank,  yet 
were  no  enemies  to  bills  of  credit.  They  were  in  favor  of  loan-bills 
from  the  government  to  any  of  the  inhabitants  who  would  mort- 
gage their  estates  as  a  security  for  the  repayment  of  the  bills  with 
interest  in  a  term  of  years:  the  interest  to  be  paid  annually,  and 
applied  to  the  support  of  government.  This  was  an  easy 
way  of  paying  public  charges;  which,  no  doubt,  they  won- 
dered that  in  so  many  ages  the  wisdom  of  other  govern- 
ments had  never  discovered.  The  principal  men  of  the 
Council  were  in  favor  of  it;  and,  it  being  thought  by  the  first 

*It  is  worthy  of  note  that  the  present-day  historians,  who  take  such 
pains  to  show  their  Intimate  knowledge  of  the  financial  plans  of  remote 
times,  studiously  avoid  mentioning  this  one. — EDITOR. 


THE  PROVINCIAL  LAND  BANK.  49 

party  the  least  of  two  evils,  they  fell  in  with  the  scheme;  and,  after 
that,  the  country  was  divided  between  the  public  and  private  bank. 
The  House  of  Representatives  was  nearly  equally  divided,  but 
rather  favorers  of  the  private  bank,  from  the  great  influence  of  the 
Boston  members  in  the  House,  and  a  great  number  of  persons  of  the 
towri  out  of  it.  The  controversy  had  a  universal  spread,  and  di- 
vided towns,  parishes,  and  particular  families. 

"At  length,  after  a  long  struggle,  the  party  for  the  public  bank 
prevailed  in  the  General  Court  for  a  loan  of  £50,000  in  bills  of  credit, 
which  were  put  into  the  hands  of  trustees,  and  let  for  five  years 
only,  to  any  of  the  inhabitants,  at  5  per  cent  interest,  one-fifth  part 
of  the  principal  to  be  paid  annually.  This  lessened  the  number  of 
the  party  for  the  private  bank;  but  it  increased  the  zeal,  and  raised 
a  strong  resentment,  in  those  that  remained."— (Thomas  Hutchin- 
son:  "History  of  Massachusetts,"  vol.  ii.,  p  188). 

It  is  utterly  inconceivable  that  any  company  of  sane  men  should 
have  seriously  proposed  to  issue  paper  money  destitute  of  all  fixed 
and  determinate  value  as  compared  with  gold  and  silver,  imagining 
that  such  money  would  circulate  as  currency.  If  paper  money  has 
"no  certain  value  compared  with  silver  and  gold,"  it  has  no  certain 
value  compared  with  any  commodity  whatever;  that  is,  it  has  no 
certain  value  at  all:  for,  since  gold  and  silver  have  a  determinate 
value  as  compared  with  exchangeable  commodities,  all  paper  money 
that  may  be  estimated  in  terms  of  marketable  commodities,  may  be 
estimated  in  terms  of  silver  and  gold.  Our  author  will  permit  us  to 
suspect  that  his  uncompromising  hostility,  not  only  to  the  land- 
bank,  but  also  to  everything  else  of  a  democratic  tendency,  blinded 
his  eyes  to  the  true  nature  of  the  institution  he  describes.  Our  sus- 
picion is  strengthened  when  we  read  that  the  paper  money  in  ques- 
tion was  to  have  a  determinate  value,  since  it  was  to  have  been  se- 
cured by  a  pledge  of  "real  estate  to  a  sufficient  value."  The  pro- 
jectors of  the  scheme  probably  intended  that  the  members  of  the 
company  should  redeem  their  bills  from  the  bill-holders  by  receiv- 
ing them,  in  all  payments,  in  lieu  of  determinate  and  specified 
amounts  of  gold  and  silver;  and  such  a  method  of  redemption 
would  have  given  the  bills  "a  certain  value  as  compared  with  sil- 
ver and  gold."* 

In  view  of  this  extract  from  Governor  Hutchinson's  history,  we 

*"North  Carolina,  just  after  the  Revolution,  issued  a  large  amount 
of  paper,  which  was  made  receivable  in  dues  to  her.  It  was  also  made  a 
legal  tender;  which,  of  course,  was  not  obligatory  after  the  adoption  of 
the  Federal  Constitution.  A  large  amount,  say  between  four  and  five 
hundred  thousand  dollars,  remained  in  circulation  after  that  period,  and 
continued  to  circulate  for  more  than  twenty  years,  at  par  with  gold  and 
silver  during  the  whole  time,  with  no  other  advantage  than  being  received 
in  the  revenue  of  the  State,  which  was  much  less  than  one  hundred  thou- 
sand dollars  per  annum."— JOHN  C.  CAI.HOUN:  Speech  on  the  bill  author- 
izing an  issue  of  treasury  notes,  Sept.  19, 1837. 


53  MUTUAL  BANKING. 

abandon  all  claims  to  novelty  or  originality  as  regards  our  own 
scheme  for  a  Mutual  Bank.  We  think  it  very  probable  that  our 
theory  dates  back  to  "the  project  published  in  London  in  the  year 
1684:"  but  we  affirm  nothing  positively  on  this  head,  since  we  are 
altogether  ignorant  of  the  details,  not  only  of  the  provincial  project, 
but  also  of  the  original  London  plan.  We  have  no  information  in 
regard  to  these  matters,  except  that  which  is  now  submitted  to  the 
reader. 

Our  author  says,  on  a  subsequent  page: 

"In  1739,  a  great  part  of  the  Province  was  disposed  to  favor 
what  was  called  the  land  bank  or  manufactory  scheme;  which  was 
begun,  or  rather  revived,  in  this  year,  and  produced  such  great  and 
lasting  mischiefs,  that  a  particular  relation  of  the  rise,  progress 
and  overthrow  of  it  may  be  of  use  to  discourage  any  attempts  of  the 
like  nature  in  future  ages." — ("History  of  Massachusetts,"  vol.  ii., 
352). 

It  appears  that  after  an  interval  of  twenty-five  years,  the  land- 
bank  scheme  rose  once  again  above  the  surface  of  the  political  and 
financial  waters.  Governor  Hutchinson  says  that  this  scheme  pro- 
duced "great  and  lasting  mischiefs."  Let  us  see  what  these  "mis- 
chiefs" were: 

"The  project  of  the  bank  of  1714  was  revived.  The  projector  of 
that  bank  now  put  himself  at  the  head  of  seven  or  eight  hundred 
persons,  some  few  of  rank  and  good  estate,  but  generally  of  low 
condition  among  the  plebeians,  and  of  small  estate,  and  many  of 
them  perhaps  insolvent.  This  notable  company  were  to  give  credit 
to  £150,000  lawful  money,  to  be  issued  in  bills;  each  person  to  mort- 
gage a  real  estate  in  proportion  to  the  sums  he  subscribed  and  took 
out,  or  to  give  bond  with  two  sureties:  but  personal  security  was 
not  to  be  taken  for  more  than  £100  from  any  one  person.  Ten  direc- 
tors and  a  treasurer  were  to  be  chosen  by  the  company.  Every 
subscriber  or  partner  was  to  pay  3  per  cent  interest  [per  annum! 
for  the  sum  taken  out,  and  5  per  cent  of  the  principal;*  and  he  that 
did  not  pay  bills  might  pay  the  produce  and  manufacture  of  the 
Province  at  such  rates  as  the  directors  from  time  to  time  should 
set:  and  they  [the  bills]  should  commonly  pass  in  lawful  money. 
The  pretence  was,  that,  by  thus  furnishing  a  medium  and  instru- 
ment of  trade,  not  only  the  inhabitants  in  general  would  be  better 
able  to  procure  the  Province  bills  of  credit  for  their  taxes,  but 
trade,  foreign  and  inland,  would  revive  and  flourish,  The  fate  of 
the  project  was  thought  to  depend  on  the  opinion  which  the  Gen- 
eral Court  should  form  of  it.  It  was  necessary,  therefore,  to  have  a 
house  of  representatives  well  disposed.  Besides  the  800  persons 
subscribers,  the  needy  part  of  the  Province  in  general  favored  the 
scheme.  One  of  their  votes  will  go  as  far  in  elections  as  one  of  the 
most  opulent.  The  former  are  most  numerous;  and  it  appeared 

*Thus  the  whole  principal  would  be  paid  up  In  twenty  years. 


THE  PROVINCIAL  LAND  BANK.  51 

that  by  far  the  majority  of  representatives  for  1740  were  subscrib- 
ers to  or  favorers  of  the  scheme,  and  they  have  ever  since  been  dis- 
tinguished by  the  name  of  the  Land-Bank  House. 

"Men  of  estates  and  the  principal  merchants  of  the  Province 
abhorred  the  project,  and  refused  to  receive  the  bills;  but  great 
numbers  of  shop-keepers  who  had  lived  for  a  long  time  on  the 
fraud  of  a  depreciating  currency,  and  many  small  traders,  gave 
credit  to  the  bills.  The  directors,  it  was  said,  by  a  vote  of  the  com- 
pany, became  traders,*  and  issued  just  such  bills  as  they  thought 
proper,  without  any  fund  or  security  for  their  ever  being  redeemed. 
They  purchased  every  sort  of  commodity,  ever  so  much  a  drug,  for 
the  sake  of  pushing  off  their  bills;  and,  by  one  means  or  other,  a 
large  sum — perhaps  fifty  or  sixty  thousand  pounds— was  floated. 
To  lessen  the  temptation  to  receive  the  bills,  a  company  of  mer- 
chants agreed  to  issue  their  notes,  or  bills,  redeemable  in  silver  and 
gold  at  distant  periods,  much  like  the  scheme  in  1733,  and  attended 
with  no  better  effect.  The  governor  exerted  himself  to  blast  this 
fraudulent  undertaking— the  land-bank.  Not  only  such  civil  and 
military  officers  as  were  directors  or  partners,  but  all  who  received 
or  paid  any  of  the  bills  were  displaced.  The  governor  negatived  the 
person  chosen  speaker  of  the  House,  being  a  director  of  the  bank; 
and  afterwards  negatived  thirteen  of  the  newly  elected  counsellors, 
who  were  directors  or  partners  in,  or  favorers  of,  the  scheme.  But 
all  was  insufficient  to  suppress  it.  Perhaps  the  major  part  in  num- 
ber of  the  inhabitants  of  the  Province  openly  or  secretly,  were  well- 
wishers  of  it.  One  of  the  directors  afterwards  acknowledged  to  me 
that,  although  he  entered  into  the  company  with  a  view  to  the 
public  interest,  yet,  when  he  found  what  power  and  influence  they 
had  in  all  public  concerns,  he  was  convinced  it  was  more  than  be- 
longed to  them,  more  than  they  could  make  a  good  use  of,  and 
therefore  unwarrantable.  Many  of  the  more  sensible,  discreet  per- 
sons of  the  Province  saw  a  general  confusion  at  hand.  The  author- 
ity of  the  Parliament  to  control  all  public  and  private  persons  and 
proceedings  in  the  Colonies,  was  at  that  day  questioned  by  nobody. 
Application  was  therefore  made  to  Parliament  for  an  act  to  sup- 
press the  company;  which,  notwithstanding  the  opposition  made  by 
their  agent,  was  very  easily  obtained,  and  therein  it  was  declared 
that  the  act  of  the  Sixth  of  King  George  I.,  chapter  xviii.,  did, 
does  and  shall  extend  to  the  colonies  and  plantations  of  America. 
It  was  said  the  act  of  George  I.,  when  it  was  passed,  had  no  relation 
to  America;  but  another  act,  twenty  years  after,  gave  it  force,  even 
from  the  passing  it,  which  it  never  could  have  had  without.  This 
was  said  to  be  an  instance  of  the  transcendent  power  of  Parlia- 
ment. Although  the  company  was  dissolved,  yet  the  act  of  Parlia- 
ment gave  the  possessors  of  the  bills  a  right  of  action  against  every 

*See  foregoing  paragraph  where  it  is  said  that  debts  to  the  bank 
might  be  paid  in  manufactures  and  produce. 


52  MUTUAL  BANKING. 

partner  or  director  for  the  sums  expressed,  WITH  INTEREST.  The 
company  was  in  a  maze.  At  a  general  meeting,  some,  it  is  said, 
were  for  running  all  hazards,  although  the  act  subjected  them  to  a 
prcemunire;  but  the  directors  had  more  prudence,  and  advised  them 
to  declare  that  they  considered  themselves  dissolved,  and  meet  only 
to  consult  upon  some  method  of  redeeming  their  bills  of  the  posses- 
sors, which  every  man  engaged  to  endeavor  in  proportion  to  his  in- 
terest, and  to  pay  in  to  the  directors,  or  some  of  them,  to  burn  or 
destroy.  Had  the  company  issued  their  bills  at  the  value  expressed 
on  the  face  of  them,  they  would  have  had  no  reason  to  complain  at 
being  obliged  to  redeem  them  at  the  same  rate,  but  as  this  was  not 
the  case  in  general,  and  many  of  the  possessors  of  the  bills  had  ac- 
quired them  for  half  their  value,  as  expressed  equity  could  not 
be  done;  and,  so  far  as  respected  the  company,  perhaps,  the  Parlia- 
ment was  not  very  anxious;  the  loss  they  sustained  being  but  a  just 
penalty  for  their  unwarrantable  undertaking,  if  it  had  been  proper- 
ly applied.  Had  not  the  Parliament  interposed,  the  Province 
would  have  been  in  the  utmost  confusion,  and  the  authority  of 
government  entirely  in  the  Land-Bank  Company."— (p.  353.) 

The  "mischiefs"  occasioned  by  this  land-bank  seems  to  have 
been  political,  rather  than  economical,  for  our  author  nowhere 
affirms  that  the  bill  holders,  not  members  of  the  company  lost  any- 
thing by  the  institution.  W«  would  remark  that  there  are  certain 
"mischiefs"  which  are  regarded  not  without  indulgence  by  poster- 
ity. Governor  Hutchinson  ought  to  have  explained  more  in  detail 
the  nature  of  the  evils  he  complains  of;  and  also  to  have  told  us 
why  he,  a  declared  enemy  of  popular  institutions,  opposed  the  ad- 
vocates of  the  bank  so  uncompromisingly.  Mutualism  operates,  by 
i ts  very  nature,  to  render  political  government  founded  on  arbi- 
trary force,  superfluous;  that  is,  it  operates  to  the  decentralization 
of  the  political  power,  and  to  the  transformation  of  the  state,  by 
substituting  self-government  in  the  stead  of  government  ab  extra* 
The  Land-Bank  of  1740,  which  embodied  the  mutual  principle,  op- 
erated vigorously  in  opposition  to  the  government.  Can  we  wonder 
that  it  had  to  be  killed  by  an  arbitrary  stretch  "of  the  supreme 
power  of  Parliament,"  and  by  an  ex  post  facto  law  bearing 
outrageously  on  the  individual  members  of  the  company?  For  our 
part,  we  admire  the  energy— the  confidence  in  the  principle  of  mu- 
tualism— of  those  members  who  proposed  to  go  on  in  spite  of 
Parliament,  "although  the  act  subjected  them  to  a  prcemunire." 
If  they  had  gone  on,  they  would  simply  have  anticipated  the  Amer- 
ican Revolution  by  some  thirty  years. 

But  where  is  the  warning  to  future  ages?  According  to  Gov- 
ernor Hutchinson's  own  statement,  the  fault  of  the  bank  was,  that 
it  would  have  succeeded  TOO  WELL  if  it  had  had  a  fair  trial;  nay, 

*Thls  is  also  Proudhon's  theory;  which  he  felicitously  called  "the 
dissolution  of  government  in  the  economic  organism."— EDITOR. 


THE  PROVINCIAL  LAND  BANK.  53 

that  it  would  have  succeeded  in  spite  of  all  obstacles  had  it  not 
been  for  the  exertion  of  "the  transcendent  power  of  Parliament." 
Where  is  the  bank  of  these  degenerate  days  that  has  shown  any- 
thing like  the  samepowerof  endurance?  Some  of  the  existing  banks 
find  it  difficult  to  live  with  the  power  of  government  exerted  in 
their  favor! 

The  attempt  of  the  Land-Bank  Company  to  republicanize  gold 
and  silver,  and  to  make  all  commodities  circulate  as  ready  money 
was,  without  question,  premature.  But  our  author  misapprehends 
the  matter,  mistaking  a  transformation  of  the  circulating  medium  for 
a  mercantile  scheme.  The  "vote  of  the  company  whereby  the  direc- 
tors became  traders,"  was  an  act  for  transforming  the  currency. 
We  do  not  justify  it  altogether;  for  it  put  the  welfare  of  the  cause 
at  too  great  hazard;  but  it  was,  nevertheless,  not  totally  out  of 
harmony  with  the  general  system.  We  remark  in  conclusion,  that 
the  depreciation  in  the  provincial  currency  was  occasioned,  not  by 
"land-bank,"  that  is,  by  mutual  paper— which  the  Parliament 
forced  the  issuers,  by  an  arbitrary,  vindictive,  and  tyrannical  law, 
to  redeem  WITH  INTEREST— but  it  was  occasioned  by  government 
paper,  "professing  to  be  ultimately  redeemable  in  gold  and  silver."* 
All  arguments,  therefore,  against  mutual  money,  derived  from  the 
colonial  currency,  are  foreign  to  the  purpose. 

The  main  objections  against  mutual  banking  are  as  follows:  1. 
It  is  a  novelty,  and  therefore  a  chimera  of  the  inventor's  brain;  2. 
It  is  an  old  story,  borrowed  from  provincial  history,  and  therefore 
of  no  account! 

How  would  you  have  us  answer  objections  like  these?  Things 
new  or  old  may  be  either  good  or  evil.  Every  financial  scheme 
should  stand  or  fall  by  its  own  intrinsic  merits,  and  not  be  judged 
from  extraneous  considerations. 

*"We  are  told  that  there  is  no  instance  of  a  government  paper  that 
did  not  depreciate.  In  reply  I  affirm  that  there  is  none  assuming  the 
form  I  propose  (notes  receivable  by  government  in  payment  of  dues) 
that  ever  did  depreciate.  Whenever  a  paper  receivable  in  the  dues  of 
government  had  anything  like  a  fair  trial,  it  has  succeeded.  Instance 
the  case  of  North  Carolina  referred  to  in  my  opening  remarks.  The 
drafts  of  the  treasury  at  this  moment,  with  all  their  incumbrance,  are 
nearly  at  par  with  gold  and  silver;  and  I  might  add  the  instance 
alluded  to  by  the  distinguished  senator  from  Kentucky,  in  which  he 
admits,  that  as  soon  as  the  excess  of  the  issues  of  the  Commonwealth 
Bank  of  Kentucky  were  reduced  to  the  proper  point,  its  notes  rose  to  par. 
The  case  of  Russia  might  also  be  mentioned.  In  1827  she  had  a  fixed 
paper-circulation  in  the  form  of  bank-notes,  but  which  were  incon- 
vertible, of  upward  of  $120,000,000,  estimated  in  the  metallic  ruble,  and 
which  had  for  years  remained  without  fluctuation;  having  nothing  to 
sustain  it  but  that  it  was  received  in  the  dues  of  government,  and 
that,  too,  with  a  revenue  of  only  about  590,000,000  annually."— JOHN  O. 
CALHOUN:  Speech  on  his  amendment  to  separate  the  government  from 
the  banks,  Oct.  3, 1837. 


CHAPTER  VII. 


The  most  concise  and  expressive  definition  of  the  term  "capi- 
tal," which  we  have  seen  in  the  writings  of  the  political  econo- 
mists, is  the  one  furnished  by  J.  Stuart  Mill,  in  his  table  of  con- 
tents. He  says:  "Capital  is  wealth  appropriated  to  reproductive 
employment."  There  is,  indeed,  a  certain  ambiguity  attached  to 
the  word  wealth ;  but  let  that  pass;  we  accept  the  definition.  A 
tailor  has  f5  in  money,  which  he  proposes  to  employ  in  his  business. 
This  money  is  unquestionably  capital,  since  it  is  wealth  appropri- 
ated to  reproductive  employment:  but  it  may  be  expended  in  the 
purchase  of  cloth,  in  the  payment  of  journeymen's  wages,  or  in  a 
hundred  other  ways;  what  kind  of  capital,  then,  is  it?  It  is  evi- 
dently, disengaged  capital.  Let  us  say  that  the  tailor  takes  his 
money  and  expends  it  for  cloth;  this  cloth  is  also  devoted  to  repro- 
ductive employment,  and  is  therefore  still  capital;  but  what  kind  of 
capital?  Evidently,  engaged  capital.  He  makes  this  cloth  into  a 
coat;  which  coat  is  more  valuable  than  the  cloth,  since  it  is  the  re- 
sult of  human  labor  bestowed  upon  the  cloth.  But  the  coat  is  no 
longer  capital;  for  it  is  no  longer  (so  far,  at  least,  as  the  occupation 
of  the  tailor  is  concerned),  capable  of  being  appropriated  to  repro- 
ductive employment;  what  is  it,  then?  It  is  that  for  the  creation 
of  which  the  capital  was  originally  appropriated;  it  is  product. 
The  tailor  takes  this  coat  and  sells  it  in  the  market  for  $8;  which 
dollars  become  to  him  a  new  disengaged  capital.  The  circle  is  com- 
plete; the  coat  becomes  engaged  capital  to  the  purchaser;  and  the 
money  is  disengaged  capital,  with  which  the  tailor  may  commence 
another  operation.  Money  is  disengaged  capital,  and  disengaged 
capital  is  money.  Capital  passes,  therefore,  through  various  forms; 
first  it  is  disengaged  capital,  then  it  becomes  engaged  capital,  then 
it  becomes  product,  afterwards  it  is  transformed  again  into  disen- 
gaged capital,  thus  recommencing  its  circular  progress. 

The  community  is  happy  and  prosperous  when  all  professions 
of  men  easily  exchange  with  each  other  the  products  of  their  labor; 
that  is,  the  community  is  happy  and  prosperous  when  money  circu- 
lates freely,  and  each  man  is  able  with  facility  to  transform  his 
product  into  disengaged  capital,  for  with  disengaged  capital,  or 
money,  men  may  command  such  of  the  products  of  labor  as  they 
desire,  to  the  extent,  at  least,  of  the  purchasing  power  of  their 
money. 

The  community  is  unhappy,  unprosperous,  miserable,  when 
money  is  scarce,  when  exchanges  are  effected  with  difficulty.  For 
notice,  that,  in  the  present  state  of  the  world,  there  is  never  real 
over-production  to  any  appreciable  extent;  for,  whenever  the  baker 


MONEY.  55 

has  too  much  bread,  there  are  always  laborers  who  could  produce 
that  of  which  the  baker  has  too  little,  and  who  are  themselves  in 
want  of  bread.  It  is  when  the  tailor  and  baker  cannot  exchange, 
that  there  is  want  and  over-production  on  both  sides.  Whatever, 
therefore,  has  power  to  withdraw  the  currency  from  circulation, 
has  power,  also,  to  cause  trade  to  stagnate;  power  to  overwhelm 
the  community  with  misery;  power  to  carry  want,  and  its  correla- 
tive, over-production,  into  every  artisan's  house  and  workshop. 
For  the  transformation  of  product  into  disengaged  capital,  is  one  of 
the  regular  steps  of  production;  and  whatever  withdraws  the  dis- 
engaged capital,  or  money,  from  circulation,  at  once  renders  this 
step  impossible,  and  thus  puts  a  drag  on  all  production. 

THERE  ARE  VARIOUS  KINDS  OF  MONEY. 

But  all  money  is  not  the  same  money.  There  is  one  money  of 
gold,  another  of  silver,  another  of  brass,  another  of  leather,  and 
another  of  paper:  and  there  is  a  difference  in  the  glory  of  these 
different  kinds  of  money.  There  is  one  money  that  is  a  commodity, 
having  its  exchangeable  value  determined  by  the  law  of  supply  and 
demand,  which  money  may  be  called  (though  somewhat  barbarous- 
ly) merchandise-money;  as  for  instance,  gold,  silver,  brass,  bank- 
bills,  etc.;  there  is  another  money,  which  is  not  a  commodity, 
whose  exchangeable  value  is  altogether  independent  of  the  law  of 
supply  and  demand,  and  which  may  be  called  mutual  money. 

Mr.  Edward  Kellogg  says:  "Money  becomes  worthless  when- 
ever it  ceases  to  be  capable  of  accumulating  an  income  which  can 
be  exchanged  for  articles  of  actual  value.  The  value  of  money  as 
much  depends  upon  its  power  of  being  loaned  for  an  income,  as  the 
value  of  a  farm  depends  upon  its  natural  power  to  produce."  And 
again:  "Money  is  valuable  in  proportion  to  its  power  to  accum- 
ulate value  by  interest."*  Mr.  Kellogg  is  mistaken.  Money 
is  a  commodity  in  a  twofold  way,  and  has  therefore  a  twofold  val- 
ue and  a  twofold  price— one  value  as  an  article  that  can  be  ex- 
changed for  other  commodities,  and  another  value  as  an  article 
that  can  be  loaned  out  at  interest;  one  price  which  is  determined 
by  the  supply  and  demand  of  the  precious  metals,  and  another 
price  (the  rate  of  interest)  which  is  determined  by  the  distress  of 
the  borrowing  community.  Mr.  Kellogg  speaks  as  though  this  last 
value  and  last  price  were  the  only  ones  deserving  consideration; 
but  this  is  by  no  means  the  case:  for  this  last  value  and  price  are  so 
far  from  being  essential  to  the  nature  of  money,  that  the  Mutual 
Bank  will  one  day  utterly  abolish  them.  The  natural  value  of  the 
silver  dollar  depends  upon  the  demand  and  supply  of  the  metal  of 
which  it  is  composed  and  not  upon  its  artificial  power  to  accumu- 
late value  by  interest.  Legislation  has  created  usury;  and  the 

*People  who  raise  the  cry  of  "cheap  money"  fall  into  the  same  error; 
money  that  circulates  freely  at  par,  whether  interest-bearing  or  not,  Is 
neither  cheap  or  dear.— EDITOR. 


56  MUTUAL  BANKING. 

Mutual  Bank  can  destroy  it.  Usury  is  a  result  of  the  legislation 
which  establishes  a  particular  commodity  as  the  sole  article  of 
legal  tender;  and,  when  all  commodities  are  made  to  be  ready 
money  through  the  operation  of  mutual  banking,  usury  will  vanish. 

CONVERTIBLE    PAPER-MONEY    RENDERS   THE  STANDARD  OF  VALUE 
UNCERTAIN. 

To  show  the  effect  of  variations  in  the  volume  of  the  existing 
circulating  medium,  not  only  on  foreign  commerce,  but  also  on  the 
private  interests  of  each  individual  member  of  the  community, 
we  will,  at  the  risk  of  being  tedious,  have  recourse  to  an  illustra- 
tion. Let  us  suppose  that  the  whole  number  of  dollars  (either  in 
specie  or  convertible  paper)  in  circulation,  at  a  particular  time,  is 
equal  to  Y;  and  that  the  sum  of  all  these  dollars  will  buy  a  certain 
determinate  quantity  of  land,  means  of  transportation,  merchan- 
dise, etc,  which  may  be  represented  by  x;  for,  if  money  may  be 
taken  as  the  measure  and  standard  of  value  for  commodities,  then 
conversely,  commodities  may  be  taken  as  the  standard  and  measure 
of  value  for  money.  Let  us  say,  therefore,  that  the  whole  mass  of 
the  circulating  medium  is  equal  to  Y;  and  that  its  value,  estimated 
in  terms  of  land,  ships,  houses,  merchandise,  etc.,  is  equal  to  x.  If, 
now,  the  quantity  of  specie  and  convertible  paper  we  have  sup- 
posed to  be  in  circulation  be  suddenly  doubled,  so  that  the  whole 
mass  becomes  equal  in  volume  to  2Y,  the  value  of  the  whole  mass 
will  undergo  no  change,  but  will  still  be  equal  to  x,  neither 
more  nor  less.  This  is  truly  wonderful!  Some  young  mathema- 
tician, fresh  from  his  algebra,  will  hasten  to  contradict  us,  and  say 
that  the  value  of  the  whole  mass  will  be  equal  to  2x,  or  perhaps  to 
x  divided  by  2,  but  it  is  the  young  mathematician  who  is  in  error,  as 
may  easily  be  made  manifest.  The  multiplication  of  the  whole 
number  of  dollars  by  2  causes  money  to  be  twice  as  easy  to  be  ob- 
tained as  it  was  before.  Such  multiplication  causes,  therefore, 
each  individual  dollar  to  fall  to  one-half  its  former  value;  and  this 
for  the  simple  reason  that  the  price  of  silver  dollars,  or  their  equiv- 
alents in  convertible  paper,  depends  upon  the  ratio  of  the  supply  of 
such  dollars  to  the  demand  for  them,  and  that  every  increase  in  the 
supply  causes  therefore  a  proportionate  decrease  in  the  price.  The 
variation  in  the  volume  does  not  cause  a  variation  in  the  value  of 
the  volume,  but  causes  a  variation  in  the  price  of  the  individual 
dollar.  Again,  if  one-half  the  money  in  circulation  be  suddenly 
withdrawn,  so  that  the  whole  volume  shall  equal  }£Y,  the  value  of 
the  new  volume  will  be  exactly  equal  to  x,  for  the  reason  that  the 
difficulty  in  procuring  money  will  be  doubled,  since  the  supply  will 
be  diminished  one-half,  causing  each  individual  dollar  to  rise  to 
double  its  former  value.  The  value  of  the  whole  mass  in  circula- 
tion is  independent  of  the  variations  of  the  volume;  for  every  in- 
crease in  the  volume  causes  a  proportionate  decrease  in  the  value 
of  the  individual  dollar,  and  every  decrease  in  the  volume  causes 
proportionate  increase  in  the  value  of  the  individual  dollar.  If  the 


MONEY.  57 

mass  of  our  existing  circulating  medium  were  increased  a  hundred- 
fold, the  multiplication  would  have  no  effect  other  than  that  of 
reducing  the  value  of  the  individual  dollar  to  that  of  the  existing 
individual  cent.  If  gold  were  as  plenty  as  iron,  it  would  command 
no  higher  price  than  iron.  If  our  money  were  composed  of  iron,  we 
should  be  obliged  to  hire  an  ox-cart  for  the  transportation  of  $100; 
and  it  would  be  as  difficult,  under  such  conditions,  to  obtain  a  cart- 
load of  iron,  as  it  is  now  to  obtain  its  value  in  our  present  currency. 

A  fall  or  rise  in  the  price  of  money,  and  a  rise  or  fall  in  the 
price  of  all  other  commodities  besides  money,  are  precisely  the  same 
economical  phenomenon. 

The  effect  of  a  change  in  the  volume  of  the  currency  is  there- 
fore not  a  change  in  the  value  of  the  whole  volume,  but  a  change  in 
the  value  of  the  individual  silver  dollar,  this  change  being  indi- 
cated by  a  variation  in  the  price  of  commodities;  a  fall  in  the  price 
of  the  silver  dollar  being  indicated  by  a  rise  in  the  price  of  commo- 
dities, and  a  rise  in  the  price  of  the  dollar  being  indicated  by 
a  fall  in  the  price  of  commodities.  "The  value  of  money,"  says  J. 
Stuart  Mill,  other  things  being  the  same,  "varies  inversely  as  its 
quantity;  every  increase  of  quantity  lowering  its  value,  and  every 
diminution  raising  it  in  a  ratio  exactly  equivalent.  That  an  increase 
of  the  quantity  of  money  raises  prices,  and  a  diminution  lowers 
them,  is  the  most  elementary  proposition  in  the  theory  of  the  cur- 
rency; and,  without  it,  we  should  have  no  key  to  any  of  the  others." 

Let  us  use  this  key  for  the  purpose  of  unlocking  the  practical 
mysteries  attached  to  variations  in  the  volume  of  the  existing  cur- 
rency. The  banks,  since  they  exercise  control  over  the  volume  of 
the  currency  by  means  of  the  power  they  possess  of  increasing  or 
diminishing,  at  pleasure,  the  amount  of  paper  money  in  circula- 
tion, exercise  control  also  over  the  value  of  every  individual  dollar 
in  every  private  man's  pocket.  They  make  great  issues,  and  money 
becomes  plenty;  that  is  to  say,  every  other  commodity  becomes 
dear.  The  capitalist  sells  what  he  has  to  sell  while  prices  are  high. 
The  banks  draw  in  their  issues,  and  money  becomes  scarce;  that  is, 
all  other  commodities  become  cheap.  The  community  is  distressed 
for  money.  Individuals  are  forced  to  sell  property  to  raise  money 
to  pay  their  debts,  and  to  sell  at  a  loss  on  account  of  the  state  of 
the  market.  Then  the  capitalist  buys  what  he  desires  to  buy  while 
prices  are  low.  These  operations  are  the  upper  and  the  nether  mill- 
stones, between  which  the  hopes  of  the  people  are  ground  to  pow- 
der. THE  EVILS  OF  CONVERTIBLE  PAPEB  MONEY. 

Paper  professing  to  be  convertible  into  silver  and  gold,  by  over- 
stocking the  home-market  with  money,  makes  specie  to  be  in  less 
demand  in  this  country  than  it  is  abroad,  and  renders  profitable  an 
undue  exportation  of  gold  and  silver;  thus  occasioning  a  chronic 
drain  of  the  precious  metals.* 

*Persons  of  little  foresight  rejoice  in  the  high  price  of  commodl- 


58  MUTUAL  BANKING. 

It  increases  the  volume  of  the  currency,  and  therefore  decreases 
the  value  of  the  individual  silver  dollar;  thus  causing  an  enhance- 
ment in  the  price  of  all  domestic  commodities;  giving  an  unnatural 
advantage  in  our  own  markets  to  foreign  manufacturers,  who  live 
in  the  enjoyment  of  a  more  valuable  currency  and  presenting  irre- 
sistible inducements  to  our  own  merchants  to  purchase  abroad 
rather  than  at  home. 

It  operates  to  give  control  over  the  currency  to  certain  organ- 
ized bodies  of  men,  enabling  them  to  exercise  partiality,  and  loan 
capital  to  their  relatives  and  favorites;  thus  encouraging  incapac- 
ity, and  depressing  merit;  and  therefore  demoralizing  the  people 
who  are  led  to  believe  that  legitimate  business,  which  should  be 
founded  altogether  upon  capital,  industry  and  talent,  partakes  of 
the  nature  of  court- favor  and  gambling. 

It  operates  to  encourage  unwise  speculation;  and,  by  furnishing 
artificial  facilities  to  rash,  scheming  and  incompetent  persons,  in- 
duces the  burying  of  immense  masses  of  capital  in  unremunerative 
enterprises. 

It  reduces  the  value  of  our  own  currency  below  the  level  of  the 
value  of  money  throughout  the  world,  rendering  over-importation 
inevitable,  causing  our  markets  to  be  overstocked  with  foreign 
goods,  and  thus  making  the  ordinary  production  of  the  country  to 
present  all  the  calamitous  effects  of  over-production. 

It  operates  inevitably  to  involve  the  country  and  individuals 
doing  business  in  the  country,  in  foreign  debts,  It  operates  also,  by 
blinding  the  people  to  the  true  nature  of  money,  and  encouraging 
them  to  raise  funds  for  the  commencement  and  completion  of  haz- 
ardous enterprises  by  the  sale  of  scrip  and  bonds  abroad,  to  mort- 
gage the  country,  and  the  produce  of  its  industry,  to  foreign  hold- 
ers of  obligations  against  us,  etc. 

ADVANTAGES  OF  A  MUTUAL  CUKRENCY. 

Mutual  Banks  would  furnish  an  ad  equate  currency;  for  whether 
money  were  hard  or  easy,  all  legitimate  paper  would  be  discounted 
by  them.  At  present,  banks  draw  in  their  issues  when  money  is 
scarce  (the  very  time  when  a  large  issue  is  desirable),  because  they 
are  afraid  there  will  be  a  run  upon  them  for  specie;  but  Mutual 
Banks,  having  no  fear  of  a  run  upon  them — as  they  have  no  metal- 
lic capital,  and  never  pretend  to  pay  specie  for  their  bills— can  al- 
ways discount  good  paper. 

It  may  appear  to  some  readers,  notwithstanding  the  explana- 


ties— that  is,  In  the  low  price  or  plentlfulness  of  money— not  reflecting 
that,  when  money  is  too  plenty,  the  sap  and  vitality  of  the  country  flow 
forth  in  a  constant  stream  to  enrich  foreign  lands.  An  excessive  supply 
of  money  causes  a  deceitful  appearance  of  prosperity,  and  favors  tempo- 
rarily a  few  manufacturers,  traders  and  mechanics;  but  it  is  always  a 
source  of  unnumbered  calamities  to  the  whole  country. 


MONEY.  59 

tions  already  given*,  that  we  go  altogether  farther  than  we  are 
warranted  when  we  affirm  that  the  creation  of  an  immense  mass  of 
mutual  money  would  produce  no  depreciation  in  the  price  of  the  sil- 
ver dollar.  The  difficulty  experienced  in  understanding  this  matter 
results  from  incorrect  notions  respecting  the  standard  of  value,  the 
measure  of  value,  and  the  nature  of  money.  This  may  be  made 
evident  by  illustration.  The  yard  is  a  measure  of  length;  and  a 
piece  of  wood,  or  a  rod  of  glass  or  metal,  is  a  corresponding  stand- 
ard of  length.  The  yard,  or  measure,  being  ideal,  is  unvarying;  but 
all  the  standards  we  have  mentioned  contract  or  expand  by  heat  or 
cold,  so  that  they  vary  (to  an  almost  imperceptible  degree,  perhaps) 
at  every  moment.  It  is  almost  impossible  to  measure  off  a  yard,  or 
any  other  given  length,  with  mathematical  accuracy.  The  meas- 
ure of  value  is  the  dollar;  the  standard  of  value,  as  fixed  by  law,  is 
silver  or  gold  at  a  certain  degree  of  fineness.  Corn,  land,  or  any 
other  merchantable  commodity  might  serve  as  a  standard  of  value, 
but  silver  and  gold  form  a  more  perfect  standard,  on  account  of 
their  being  less  liable  to  variation;  and  they  have  accordingly  been 
adopted,  by  the  common  consent  of  all  nations,  to  serve  as  such. 
The  dollar,  as  simple  measure  of  value,  has — like  the  yard,  which  is 
a  measure  of  length— an  ideal  existence  only.  In  Naples,  the  ducat 
is  the  measure  of  value;  but  the  Neapolitans  have  no  specific  coin 
of  that  denomination.  Now,  it  is  evident  that  the  bill  of  a  Mutual 
Bank  is  like  a  note  of  hand,  or  like  an  ordinary  bank  bill,  neither  a 
measure,  nor  a  standard  of  value.  It  is  (1)  not  a  measure;  for,  un- 
like all  measures,  it  has  an  actual,  and  not  a  merely  ideal  existence. 
The  bill  of  a  Mutual  Bank,  being  receivable  in  lieu  of  a  specified 
number  of  silver  dollars  presupposes  the  existence  of  the  silver  dol- 
lar as  measure  of  value,  and  acknowledges  itself  as  amenable  to 
that  measure.  The  silver  dollar  differs  from  a  bill  of  a  Mutual 
Bank  receivable  in  lieu  of  a  silver  dollar,  as  the  measure  differs 
from  the  thing  measured.  The  bill  of  a  Mutual  Bank  is  (2)  not  a 
standard  of  value,  because  it  has  in  itself  no  intrinsic  value,  like 
silver  and  gold;  its  value  being  legal,  and  not  actual.  A  stick  has 
actual  length,  and  therefore  may  serve  as  a  standard  of  length; 
silver  has  actual  intrinsic  value,  and  may  therefore  serve  as  a 
standard  of  value;  but  the  bill  of  a  Mutual  Bank,  having  a  legal 
value  only,  and  not  an  actual  one,  cannot  serve  as  a  standard  of 
value,  but  is  referred,  on  the  contrary,  to  silver  and  gold  as  that 
standard,  without  which  it  would  itself  be  utterly  unintelligible. 

If  ordinary  bank  bills  represented  specie  actually  existing  in 
the  vaults  of  the  banks,  no  mere  issue  or  withdrawal  of  them 
could  effect  a  fall  or  rise  in  the  value  of  money;  for  every  issue  of  a 
dollar-bill  would  correspond  to  the  locking  up  of  a  specie  dollar  in 

*Perhaps  on  account  of  those  explanations.  As  heat  melts  wax,  and 
hardens  clay,  so  the  same  general  principles,  as  applied  to  merchandise 
money  and  to  mutual  money,  give  opposite  results. 


60  MUTUAL  BANKING 

the  bank's  vaults;  and  every  cancelling  of  a  dollar-bill  would  cor- 
respond to  the  issue  by  the  banks  of  a  specie  dollar.  It  is  by  the  ex- 
ercise of  banking  privileges — that  is,  by  the  issue  of  bills  purporting 
to  be,  but  which  are  not,  convertible— that  the  banks  effect  a  de- 
preciation in  the  price  of  the  silver  dollar.  It  is  this  fiction  (by 
which  legal  value  is  assimilated  to,  and  becomes,  to  all  business  in- 
tents and  purposes,  actual  value)  that  enables  bank-notes  to  depre- 
ciate the  silver  dollar.  Substitute  verity  in  the  place  of  fiction, 
either  by  permitting  the  banks  to  issue  no  more  paper  than  they 
have  specie  in  their  vaults,  or  by  effecting  an  entire  divorce  between 
bank-paper  and  its  pretended  specie  basis,  and  the  power  of  paper 
to  depreciate  specie  is  at  an  end.  So  long  as  the  fiction  is  kept  up, 
the  silver  dollar  is  depreciated,  and  tends  to  emigrate  for  the  pur- 
pose of  traveling  in  foreign  parts;  but  the  moment  the  fiction  is  de- 
stroyed, the  power  of  paper  over  metal  ceases.  By  its  intrinsic 
nature  specie  is  merchandise,  having  its  value  determined,  as  such, 
by  supply  and  demand;  but  on  the  contrary,  paper-money  is,  by  its 
intrinsic  nature,  not  merchandise,  but  the  means  whereby  merchan- 
dise is  exchanged,  and  as  such  ought  always  to  be  commensurate  in 
quantity  with  the  amount  of  merchandise  to  be  exchanged,  be  that 
amount  great  or  small.  Mutual  money  is  measured  by  specie,  but 
is  in  no  way  assimilated  to  it;  and  therefore  its  issue  can  have  no 
effect  whatever  to  cause  a  rise  or  fall  in  the  price  of  the  precious 
metals. 


CHAPTER  VIII. 

CREDIT. 

We  are  obliged  to  make  a  supposition  by  no  means  flattering 
to  the  individual  presented  to  the  reader.  Let  us  suppose,  there- 
fore, that  some  miserable  mortal,  who  is  utterly  devoid  of  any  per- 
sonal good  quality  to  recommend  him,  makes  his  advent  on  the 
stage  of  action,  and  demands  credit.  Are  there  circumstances 
under  which  he  can  obtain  it?  Most  certainly.  Though  he  pos- 
sesses neither  energy,  morality  nor  business  capacity,  yet  if  he 
owns  a  farm  worth  $2,000,  which  he  is  willing  to  mortgage  as  secur- 
ity for  $  1,500  that  he  desires  to  borrow,  he  will  be  considered  as 
eminently  deserving  of  credit.  He  is  neither  industrious,  punctual, 
capable,  nor  virtuous;  but  he  owns  a  farm  clear  of  debt  worth 
$2,000  and  verily  he  shall  raise  the  $1,500! 

Personal  credit  is  one  thing;  real  credit  is  another  and  a  very 
different  thing.  In  one  case,  it  is  the  man  who  receives  credit;  in 
the  other,  it  is  the  property,  the  thing.  Personal  credit  is  in  the 
nature  of  partnership;  real  credit  is  in  the  nature  of  a  sale,  with  a 
reserved  right  of  repurchase  under  conditions.  By  personal  credit, 
two  men  or  more  are  brought  into  voluntary  mutual  relations ;  by  real 
credit,  a  certain  amount  of  fixed  property  is  transformed,  under 
certain  conditions  and  for  a  certain  time,  into  circulating  medium; 
that  is,  a  certain  amount  of  engaged  capital  is  temporarily  trans- 
formed into  disengaged  capital. 

THE  USURY  LAWS. 

We  have  already  spoken  of  the  absurdity  of  the  usury  laws. 
But  let  that  pass;  we  will  speak  of  it  again. 

A  young  man  goes  to  a  capitalist,  saying:  "If  you  will  lend  me 
$100, 1  will  go  into  a  certain  business,  and  make  $1,500  in  the  course 
of  the  present  year;  and  my  profits  will  thus  enable  me  to  pay  you 
back  the  money  you  lend  me,  and  another  $100  for  the  use  of  it.  In- 
deed it  is  nothing  more  than  fair  that  I  should  pay  you  as  much  as 
I  offer;  for,  after  all,  there  is  a  great  risk  in  the  business,  and  you 
do  me  a  greater  favor  than  I  do  you."  The  capitalist  answers:  "I 
cannot  lend  you  money  on  such  terms;  for  the  transaction  would 
be  illegal;  nevertheless,  I  am  willing  to  help  you  all  I  can,  if  I  can 
devise  a  way.  What  do  you  say  to  my  buying  such  rooms  and 
machinery  as  you  require,  and  letting  them  to  you  on  the  terms  you 
propose?  For,  though  I  cannot  charge  more  than  6  per  cent  on 
money  loaned,  I  can  let  buildings,  whose  total  value  is  only  $100,  at 
a  rate  of  $100  per  annum,  and  violate  no  law.  Or,  again,  as  I  shall 
be  obliged  to  furnish  you  with  the  raw  material  consumed  in  your 


62  MUTUAL  BANKING. 

business,  what  do  you  say  to  our  entering  into  a  partnership,  so  ar- 
ranging the  terms  of  agreement  that  the  profits  will  be  divided  in 
fact,  as  they  would  be  in  the  case  that  I  loaned  you  $100  at  100  per  cent 
interest  per  annum?"  The  young  man  will  probably  permit  the  cap- 
italist to  arrange  the  transaction  in  any  form  he  pleases,  provided 
the  money  is  actually  forthcoming.  If  the  usury  laws  speak  any 
intelligible  language  to  the  capitalist,  it  is  this:  "The  legislature 
does  not  intend  that  you  shall  lend  money  to  any  young  man  to 
help  in  his  business,  where  the  insurance  upon  the  money  you  trust 
in  his  hands,  and  which  is  subjected  to  the  risk  of  his  transactions, 
amounts  to  more  than  6  per  cent  per  annum  on  the  amount  loaned." 
And,  in  this  speech,  the  deep  wisdom  of  the  legislature  is  mani- 
fested! Why  six,  rather  than  five  or  seven?  Why  any  restriction 
at  all? 

Now  for  the  other  side  (for  we  have  thusifar  spoken  of  the 
usury  laws  as  they  bear  on  mere  personal  credit):  If  a  man  bor- 
rows 11,500  on  the  mortgage  of  a  farm,  worth,  in  the  estimation  of 
the  creditor  himself,  $2,000,  why  should  he  pay  6  per  cent  interest  on 
the  money  borrowed?  What  does  this  interest  cover?  Insurance? 
Not  at  all;  for  the  money  is  perfectly  safe,  as  the  security  given  is 
confessedly  ample;  the  insurance  is  0.  Does  the  interest  cover  the 
damage  which  the  creditor  suffers  by  being  kept  out  of  his  money 
for  the  time  specified  in  the  contract?  This  cannot  be  the  fact — for 
the  damage  is  also  0— since  a  man  who  lends  out  money  at  interest, 
on  perfect  security,  counts  the  total  amount  of  interest  as  clear 
gain,  and  would  much  prefer  letting  the  money  at  %  per  cent  to 
permitting  it  to  remain  idle.  The  rate  of  interest  upon  money  lent 
on  perfect  security  is  commensurate,  not  with  the  risk  the  creditor 
runs  of  losing  his  money — for  that  risk  is  0;  not  to  the  inconven- 
ience to  which  the  creditor  is  put  by  letting  the  money  go  out  of  his 
hands — for  that  inconvenience  is  also  0,*  since  the  creditor  lends 
only  such  money  as  he  himself  does  not  wish  to  use;  but  it  is  com- 
mensurate with  the  distress  of  the  borrower.  One  per  cent  per 
annum  interest  on  money  lent  on  perfect  security  is,  therefore,  too 
high  a  rate;  and  all  levying  of  interest-money  on  perfect  security 
is  profoundedly  immoral,t  since  such  interest-money  is  the  fruit  of 
the  speculation  of  one  man  upon  the  misfortune  of  another.  Yet 
the  legislature  permits  one  citizen  to  speculate  upon  the  misfortune 
of  another  to  the  amount  of  six-hundredths  per  annum  of  the  ex- 
tent to  which  he  gets  him  into  his  power!  This  is  the  morality  of 
the  usury  laws  in  their  bearing  on  real  credit. 

*If,  however,  the  inconvenience  is  anything,  the  lender  ought  to  be 
indemnified;  but  such  indemnification  is  not  properly  interest. 

tPerhaps,  we  ought  rather  to  say,  "would  be  profoundly  immoral  in  a 
more  perfect  social  order."  We  suppose  that  must  be  considered  right. 
In  our  present  chaotic  state,  which  is  best  on  the  whole,  or  which— taking 
men's  passion  as  they  are— is  unavoidable. 


CREDIT.  63 

LEGITIMATE  CBEDIT. 

All  the  questions  connected  with  credit,  the  usury  laws,  etc., 
may  be  forever  set  at  rest  by  the  establishment  of  Mutual  Banks. 
Whoever  goes  to  the  mutual  bank,  and  offers  real  property  in 
pledge,  may  always  obtain  money;  for  the  Mutual  Bank  can  issue 
money  to  any  extent;  and  that  money  will  always  be  good,  since  it 
is  all  of  it  based  on  actual  property,  that  may  be  sold  under  the 
hammer.  The  interest  will  always  be  at  a  less  rate  than  1  per  cent 
per  annum,  since  it  covers,  not  the  insurance  of  the  money  loaned, 
there  being  no  such  insurance  required,  as  the  risk  is  0;  since  it 
covers,  not  the  damage  which  is  done  the  bank  by  keeping  it  out  of 
its  money,  as  that  damage  is  also  0,  the  bank  having  always  an  un- 
limited supply  remaining  on  hand,  so  long  as  it  has  a  printing-press 
and  paper;  since  it  covers,  plainly  and  simply,  the  mere  expenses  of 
the  institution— clerk-hire,  rent,  paper,  printing,  etc.  And  it  is  fair 
that  such  expenses  should  be  paid  under  the  form  of  a  rate  of  interest; 
for  thus  each  one  contributes  to  bear  the  expenses  of  the  bank,  and 
in  the  precise  proportion  of  the  benefits  he  individually  experiences 
from  it.  Thus  the  interest,  properly  so  called,  is  0;  and  we  venture 
to  predict  that  the  Mutual  Bank  will  one  day  give  all  the  real 
credit  that  will  be  given;  for  since  this  bank  will  give  such  at  0  per 
cent  interest  per  annum,  it  will  be  difficult  for  other  institutions  to 
compete  with  it  for  any  length  of  time.  The  day  is  coming  when 
everything  that  is  bought  will  be  paid  for  on  the  spot,  and  in  mu- 
tual money;  when  all  payments  will  be  made,  all  wages  settled,  on 
the  spot.  The  Mutual  Bank  will  never,  of  course,  give  personal 
credit;  for  it  can  issue  bills  only  on  real  credit.  It  cannot  enter 
into  partnership  with  anybody;  for,  if  it  issues  bills  where  there  is 
no  real  guarantee  furnished  for  their  repayment,  it  vitiates  the  cur- 
rency, and  renders  itself  unstable.  Personal  credit  will  one  day  be 
given  by  individuals  only;  that  is,  capitalists  will  one  day  enter 
into  partnership  with  enterprising  and  capable  men  who  are  with- 
out capital,  and  the  profits  will  be  divided  between  the  parties  ac- 
cording as  their  contract  of  partnership  may  run.  Whoever,  in  the 
times  of  the  Mutual  Bank,  has  property,  will  have  money  also;  and 
the  laborer  who  has  no  property  will  find  it  very  easy  to  get  it;  for 
every  capitalist  will  seek  to  secure  him  as  a  partner.  All  services 
will  then  be  paid  for  in  ready  money;  and  the  demand  for  labor  will 
be  increased  three,  four  and  five  fold. 

As  for  credit  of  the  kind  that  is  idolized  by  the  present  genera- 
tion, credit  which  organizes  society  on  feudal  principles,  confused 
credit,  the  Mutual  Bank  will  obliterate  it  from  the  face  of  the 
earth.  Money  furnished  under  the  existing  system  to  individuals 
and  corporations  is  principally  applied  to  speculative  purposes,  ad- 
vantageous, perhaps,  to  those  individuals  and  corporations,  if  the 
speculations  answer;  but  generally  disadvantageous  to  the  com- 
munity, whether  they  answer  or  whether  they  fail.  If  they  answer, 
they  generally  end  in  a  monopoly  of  trade,  great  or  small,  and  in 


64  MUTUAL  BANKING. 

consequent  high  prices;  if  they  fail,  the  loss  falls  on  the  community. 
Under  the  existing  system,  there  is  little  safety  for  the  merchant. 
The  utmost  degree  of  caution  practicable  in  business  has  never 
yet  enabled  a  company  or  individual  to  proceed  for  any  long  time 
without  incurring  bad  debts. 

The  existing  organization  of  credit  is  the  daughter  of  hard 
money,  begotten  upon  it  incestuously  by  that  insufficiency  of  circu- 
lating medium  which  results  from  laws  making  specie  the  sole  legal 
tender.  The  immediate  consequences  of  confused  credit  are  want 
of  confidence,  loss  of  time,  commercial  frauds,  fruitless  and  re- 
peated applications  for  payment,  complicated  with  irregular  and 
ruinous  expenses.  The  ultimate  consequences  are  compositions, 
bad  debts,  expensive  accommodation-loans,  lawsuits,  insolvency, 
bankruptcy,  separation  of  classes,  hostility,  hunger,  extravagance, 
distress,  riots,  civil  war,  and,  finally,  revolution.  The  natural  con- 
sequences of  mutual  banking  are,  first  of  all,  the  creation  of  order, 
and  the  definite  establishment  of  due  organization  in  the  social 
body;  and,  ultimately,  the  cure  of  all  the  evils  which  flow  from  the 
present  incoherence  and  disruption  in  the  relations  of  production 
and  commerce. 


CONCLUSION. 

The  expensive  character  of  the  existing  circulating  medium  is 
evident  on  the  most  superficial  inspection.  The  assessor's  valua- 
tion for  1830,  of  the  total  taxable  property  then  existing  in  the  Com- 
monwealth of  Massachusetts,  was  $208,360,407;  the  valuation  for 
1840  was  $299,878,329.  We  may  safely  estimate,  that  the  valuation 
for  1850  will  be  to  that  of  1840  as  that  of  1840  was  to  that  of  1830. 
Performing  these  calculations,  we  find  that  the  total  amount  of  tax- 
able property  possessed  by  the  people  of  Massachusetts  in  the  pres- 
ent year,  is  about  $431,588,724.*  The  excess  of  this  last  valuation 
over  that  of  1840— i.  e.,  $131,710,395— is  the  net  gain,  the  clear  profit, 
of  the  total  labor  of  the  people  in  the  ten  years  under  consideration. 
The  average  profit  for  each  year  was,  therefore,  $13,171,039.  In  the 
year  1849,  the  banks  of  Massachusetts  paid  their  tax  to  the  state, 
their  losses  on  bad  debts,  their  rents,  their  officers  and  lawyers, 
and  then  made  dividends  of  more  than  SEVEN  PER  CENT  on  their 
capitals.  The  people,  must,  therefore,  in  the  course  of  that  year 
(1840)  have  paid  interest  money  to  the  banks  to  the  amount  of  at 
least  10  per  cent  on  the  whole  banking  capital  of  the  state.  At  the 
close  of  the  year  1848,  the  banking  capital  in  the  state  amounted  to 
$32,683,330.  Ten  per  cent  on  $32,683,330  is  $3,268,333— the  amount  the 
people  paid,  during  the  year  1849,  for  the  use  of  a  currency.  If  the 
material  of  the  currency  had  been  iron,  $3,268,333  would  probably 
have  paid  the  expenses  of  the  carting  and  counting.  What,  then,  is 
the  utility  of  our  present  paper  money?  We  have  estimated  the 
total  profits  of  the  whole  labor  of  the  people  of  the  Commonwealth 
for  the  year  1849,  at  $13,171,039.  It  appears,  therefore,  that  the  total 
profits  of  nearly  one-fourth  part  of  the  whole  population  of  the 
state  were  devoted  to  the  single  purpose  of  paying  for  the  use  of  a 
currency. 

Mutual  Banks  would  have  furnished  a  much  better  currency  at 
less  than  one-tenth  of  this  expense. 

The  bills  of  a  Mutual  Bank  cannot  reasonably  pretend  to  be 
standards  or  measures  of  value;  and  this  fact  is  put  forth  as  a 
recommendation  of  the  mutual  money  to  favorable  consideration. 
The  silver  dollar  is  the  measure  and  standard  of  value;  and  the 
bills  of  a  Mutual  Bank  recognize  the  prior  existence  of  this  meas- 
ure, since  they  are  receivable  in  lieu  of  so  many  silver  dollars.  The 
bill  of  a  Mutual  Bank  is  not  a  measure  of  value,  since  it  is  itself 
measured  and  determined  in  value  by  the  silver  dollar.  If  the 
dollar  rises  in  value,  the  bill  of  the  Mutual  Bank  rises  also, 
since  it  is  receivable  in  lieu  of  a  silver  dollar.  The  bills 

*According  to  the  report  of  the  Valuation  Committee,  it  appears  to 
have  been  (in  the  year  1850)  $600,000,000— a  much  larger  sum. 


66  MUTUAL  BANKING. 

of  a  Mutual  Bank  are  not  measures  of  value,  but  mere  instruments 
of  exchange;  and,  as  the  value  of  the  mutual  money  is  determined, 
not  by  the  demand  and  supply  of  the  mutual  money,  but  by  the  de- 
mand and  supply  of  the  precious  metals,  the  Mutual  Bank  may  is- 
sue bills  to  any  extent,  and  those  bills  will  not  be  liable  to  any  de- 
preciation from  excess  of  supply.  And  for  like  reasons,  the  mutual 
money  will  not  be  liable  to  rise  in  value  if  it  happens  at  any  time  to 
be  scarce  in  the  market.  The  issues  of  said  mutual  money  are 
therefore  susceptible  of  any  contraction  or  expansion  which  may  be 
necessary  to  meet  the  wants  of  the  community;  and  such  contrac- 
tion or  expansion  cannot,  by  any  possibility,  be  attended  with  any 
evil  consequence  whatever;  for  the  silver  dollar,  which  is  the 
standard  of  value,  will  remain  throughout  at  the  natural  valuation 
determined  for  it  by  the  general  demand  and  supply  of  gold  and 
silver  throughout  the  whole  world. 

In  order  that  the  silver  dollar,  which  is  the  standard  and  meas- 
ure of  value,  may  not  be  driven  out  of  circulation,  the  Mutual 
Bank — which  has  no  vault  for  specie  other  than  the  pockets  of  the 
people— ought  to  issue  no  bill  of  a  denomination  less  than  five 
dollars. 

THE  END. 


A    000018577     7 


